Continually Updating Evaluations

When I talk with Japanese business people aged 50 and above, I am often surprised to see that they feel Japanese manufacturers are still better than their Chinese counterparts. In my assessment, except in some fields (such as specialty chemicals), Chinese ones excel. In household electric appliances and EVs, for example, Chinese makers produce better products at lower prices.

I think this is due not to complacency but to bias. We tend to underestimate the speed of catch-up. Let's say the product quality of companies A and B is 100 and 20 respectively as of 2000. Let's say Company A improves by 2% per year, while Company B improves by 20%. In this simple example, it takes only 10 years for B to surpass A, so by 2010, B is already better than A, and the gap only widens.

However, we tend to strongly remember the gap we saw in the early days, because it is mentally taxing to update our recognition of the situation given our limited cognitive capacity. If we need to update information frequently, it becomes very difficult to navigate, so we tend to take cognitive shortcuts when forming evaluative memories.

The same pattern appears in our evaluation of people. I often see people who tend to underestimate or overestimate a person at age 40, based on their memory of that person in their twenties. Granted, human nature may not change quickly, but there are often cases where people show significant improvement over several years in terms of their capabilities.

From a broader perspective, I think people in the West tend to look down on developing nations, not knowing that the center of power is now shifting to Asia, especially China, India, and Indonesia. In ten years' time, this shift will be plainly obvious.

Sound strategy formulation always starts with an objective and accurate appreciation of reality. The best way to refine our assessment of the situation is to travel and talk with people, however time-consuming and mentally burdensome it may be.