The West should be worried: “DeepSeek” hints that China has mastered the art of kaizen

 

he Japanese concept of continuous industrial improvement helps explain Beijing's technological success.

Leo Lewis

During the height of the space race, America spent millions of taxpayer dollars developing a pen that would work in zero gravity. Faced with the same problem, the Russians used … a pencil.

This is, in fact, a fictional tale. Both sides first tried pens and eventually used the Space Pen, a product developed entirely by the private sector. But the myth often returns as an industrial, geopolitical, and ideological parable, because it encapsulates the fear that runs through all of these realms: that the opposing company, position, or economic model might be better structured to work smarter and cheaper.

Did the Space Pen meme make a comeback this week, as investors and governments were wowed by China's supposedly low-cost model of artificial intelligence [AI]? DeepSeek, wondering if US export controls had backfired and losing faith in the billions invested in the more expensive American approach to the same problem? Of course they have.

But the most worrying term of the moment has to be kaizen – the Japanese concept of “continuous improvement” that once struck fear into the hearts of corporate America and which China, in one way or another, seems to have quietly mastered – in part by hiring Japanese kaizen masters who were undervalued in their own economy.

Kaizen became a real part of the international business lexicon in the 80s, when American and European companies needed to understand why Japanese companies were beating them – both on price and quality – in industries such as automotive, consumer electronics and semiconductors. Both sides identified the difference as a patient and deeply Japanese improvement of product and process.

The practical effects of kaizen were extraordinary: they were one of the main reasons why Japan's economy became a superpower in the 1970s and 80s and why many of its companies still remain global competitors in a wide range of manufacturing sectors.

But perhaps even more remarkable is the evolution of kaizen during Japan’s decades of economic stagnation after the bursting of the financial bubble. As the era of financial excesses faded, kaizen became a survival superpower: a mechanism for simultaneously increasing quality and reducing costs in tough times. Deflation and the inability of Japanese manufacturers to secure pricing power in their domestic market turned cost-cutting into a veritable art.

Chinese manufacturers, long focused on cost and technology, have carefully observed this entire process and found ways to make kaizen a part of them. DeepSeek may represent a major advancement in software, but it is an achievement built on the foundations of a hardware sector that is moving forward relentlessly and continuously.

Many would argue that China’s technology acquisition has been, at best, opportunistic and, at worst, dishonest. When outright theft or coercion is not to blame (which is often the case), foreign companies have lost key technologies due to poor transfer agreements or over-optimism about their ability to protect intellectual property. But that doesn’t explain everything.

In China’s most recent and visible industrial achievements – the production of low-cost, competitively priced electric cars, consumer electronics, industrial machinery, high-speed trains and robots – a version of kaizen is already at work. And there is reason to suspect that the Chinese version could work for a faster, more disruptive period and with more visible results than the Japanese original.

First, China has the human resources and talent to apply kaizen on a much larger scale than Japan ever achieved. Incremental improvements work best when there are lots of them.

Second, this is happening in an era where consumers are much quicker to identify and communicate when a product is not exactly what they would like.

But third, China may be able to pay for speed. In addition to observing kaizen in action firsthand in Japanese manufacturing operations, Chinese companies, according to recruitment agents in Tokyo, have found that they can attract Japanese engineers specializing in semiconductors, railways and robotics as consultants. This is nothing new, the agents say, but it is now accelerating significantly.

Japanese corporations tend to retire highly skilled employees relatively early, who have not been paid particularly well during the deflationary years and have failed to create the sense of loyalty they might have hoped for. Such an engineer may be well paid by a Chinese company, and without directly revealing industrial secrets, his value remains immense: kaizen is essentially a process of trial and error, and an experienced engineer can offer invaluable advice on what has been tried and what has not worked.