The Japanese software industry is a paradox, at once highly productive and yet unsuccessful. What does this contrast suggest? This paper provides an analysis of the overall structure of the industry. Its user-driven nature, that is the role played by the large users of software as compared to the roles of independent software houses, is shown to be an important factor. The paper demonstrates that when information technologies are introduced, sustaining shopfloor usability, rather than stressing technological innovation, is Japan's most salient characteristic. The structure explains the fact that the Japanese software industry is characterized by a high degree of customized software and that the efficiency gains can be obtained by software factories in several of the large computer-related companies. However, the structure of the Japanese software industry has inhibited the development of packaged software and also the evolution of innovative independent software houses. With the current trend in the computer industry towards down-sizing and open systems, the structure of the Japanese software industry presents critical weaknesses.
