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Japan’s biggest problems are conservatism and cowardice. We want stability, peace of mind and safety. But the world keeps changing. Other countries are growing, while we in Japan stick to our old ways.

One problem is that we look down on developing countries. We should be willing to learn from companies in these countries if they are better than us. But we lack the willingness to learn because we have been so successful before. That holds true for managers and employees alike.

Another problem is that Japanese business people and companies are lacking in individuality. Too many people think that everyone must be the same. That’s a basic fault.

Finally, Japanese companies seem to have their eyes in the rearview mirror. They have become introspective. I think we should get back to something more like we were at the end of the war when Japan rose to prominence from a situation in which it had nothing. (It was during this period that Fast Retailing got started, in 1949.)

We’ve lost that spirit, maybe because we are under the illusion that we are rich and superior. But many countries are just as rich, and in Japan, income has stagnated for many people for a decade or more. Japan is still very comfortable to live in, if you are Japanese. But there’s a difference between being comfortable and being viable. We are gradually losing our viability.

In short, Japan has been utterly defeated as an economy. We’re losing the economic game. So why are we being so foolish? Or, more precisely, why aren’t we learning from our mistakes?

Learning from mistakes is something that Uniqlo has had to do—several times, unfortunately.

We opened our first store outside Japan in 2001, in London. And we failed spectacularly. We quickly opened 21 outlets in Britain—and shut down 16 of them by 2003. In retrospect, that was probably good, because we learned so much. Our big mistake was to try to do things the British way. We never capitalized on our strengths.

For example, we let Uniqlo’s UK president create a compartmentalized management team, with area managers, store managers, assistant store managers, and then the sales staff. Store managers only spoke with other store managers. We don’t have that kind of class system in Japan. Our organizations are flat.

China, the second overseas market we entered, was a failure at first, too. We faltered in China because we went too far in adapting to China. Per capita income is low—about 5 percent of Japan’s—so we figured we should sell at much lower prices. That was a mistake. Uniqlo has a Japanese identity; no one wanted a Chinese Uniqlo.

Vegetables were a disaster too. We saw food distribution as a backward sector, so we went into partnership with a food group, Ryokuken, in 2002. But vegetables are not an industrial product; you don’t know exactly when they will be ready or in what volume. We eventually understood that it would be impossible to succeed unless we ran our own farms, and we did not want to be farmers. After two years, we shut operations down.

The important thing is not so much that we failed in these instances, but that we learned and eventually succeeded. In Britain, we now have more than a dozen stores, including a flagship on London’s Oxford Street, and are doing well. China is our fastest-growing market, with almost 100 stores. By 2020, we hope to have more stores in China than in Japan (800 plus). Uniqlo’s international operations are growing fast. We now have stores in 10 countries, with Thailand, Brazil and India in our sights. By 2015, most of our Japanese employees could be outside Japan.

Failures are always unpleasant; from the right perspective, though, they can be useful. Our travails in Britain and China fostered resilience and led us to understand three important things. First, to create the best possible Uniqlo in other countries, we had to use the best aspects of our own organization. Second, while globalization is difficult, it is also essential. And third, to succeed outside Japan requires understanding other markets on their own terms.

In short, Uniqlo has to be both Japanese and global. The analogy to Japan as a whole is obvious.

One thing Japan has to get rid of is the idea that things are one way here and different everywhere else. The Japanese are really strong at home, and incredibly weak away from home. We need Japanese who are strong away, or who don’t distinguish between home and away. We’re trying to build this idea into Uniqlo’s culture. For example, English is spoken at business meetings with foreigners, and we want all emails to be in English in a few years.

Most ordinary Japanese industries are bound up by government regulation, or by agreements (tacit or explicit) within the industry. The idea is to create a union or association or something and then use it to start imposing regulation and preventing competition. I hate that sort of approach. We do our best to avoid the government-industrial structures so typical of much of the Japanese economy. These are meant to be safety nets; in fact, they are shackles on global competitiveness.

My advice for young Japanese is simple: get out of Japan. One of our weaknesses as Japanese is our ineptness at communicating with other cultures. Even people who speak English well are closed off psychologically. They don’t speak frankly like I do. There’s this uniquely Japanese standoffishness, this hesitancy to become too involved. And it’s detrimental to globalization.

All this sounds pessimistic, but I don’t see this as the counsel of despair. Japan has everything—people, goods, money, technology, information. As a nation, we are honest, hard-working and serious. So why are we so weak? Why don’t we use these strengths to take on the world?

If we give it everything we’ve got and start to move in the right direction, I’m confident that we will succeed. Even if we experience failure, we can pick ourselves up and try again. That’s what Uniqlo did—and that is what Japan can do.

As part of a yearlong effort, McKinsey has been going beyond the news to prepare an in-depth report with 80 top authors on the future of Japan. For more information, see Reimagining Japan: The Quest for a Future That Works.

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