Chapter 17 Japan Managers as problem definers, not

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Japan
Chapter 17
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Japan

• Objectives
• Introduction
• Political, social and cultural characteristics
• Economic characteristics
• Business characteristics
• Japanese corporations
• A changing nation
• Restructuring corporations.

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Objectives

• Examine the underlying factors - economic,
  political, social and cultural - that underlie
  the distinctiveness of Japan, its business
  practices and its corporations.
• Understand why Japan is a difficult but rewarding
  market for foreign firms to enter.
• Identify key strengths and weaknesses of Japanese
  firms.
• Explore the ongoing changes in Japan and the
  implications for Japanese firms, their
  collaborators and competitors.

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Introduction
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(No Transcript)
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Political, social and cultural characteristics
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Political and legal system

• The branches of the Japanese government are very
  similar to those in the United States
  legislative, executive and judicial.
• Legislative power is vested in the Diet, which
  consists of a popularly elected House of
  Representatives and House of Councilors.
• Executive power rests with the Cabinet that is
  organized and headed by the prime minister, who
  is elected by the Diet.
• The judicial power is vested in the Supreme
  Court. In addition, there are eight high courts
  and a host of district courts throughout the
  country.

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Ministry of International Trade and Industry
(MITI)

• MITI served as the coordinating body of the
  countrys powerful commercial machinery between
  the 1950s and early 2000s.
• MITI encouraged Japanese companies to pursue
  targeted opportunities.
• Computer technology, high-tech industrial and
  agricultural machinery, optical electronics and
  world-class auto manufacturing.
• When MITI identified an area where it would like
  to expand business efforts, it was able to gain
  support for three reasons.
• Financial incentives these are made available to
  companies that were prepared to commit resources.
• Personal relationship most MITI ministers
  attended the major universities, and so they have
  school ties to the captains of industry.
• Location MITI offices and those of most
  corporate and financial giants were located in
  the same area of Tokyo.

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Ministry of Economy, Trade and Industry (METI)

• In 2001, MITI was replaced by METI (the Ministry
  for Economy, Trade and Industry).
• The practice of amakudari, involved the regular
  movement of senior politicians and civil servants
  from the public sector into private sector
  companies, often as highly paid consultants.
• The early 1990s saw the start of a series of
  restructurings in Japanese politics to decrease
  government influence of the economy. Arguably,
  Government in Japan continues to plays a more
  important role in the economy than in other OECD
  countries.

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Social and cultural characteristics

• Collectivism rather than individualism, dominates
  many aspects of Japanese life.
• Within companies certain characteristics have
  strong religious roots, including honour,
  respect, sincerity, loyalty (chu), duty,
  obligation or responsibility (giri), ritual and
  hierarchy.
• Parentchild relationships characterise the
  hierarchical nature of inter-organizational and
  interpersonal links, such as governmentindustry,
  large firmsmall firm, manageremployee, etc.
• Respect for elders, ritualistic (highly-complex)
  language forms and behaviour, group activities
  and consensus decision making are all important
  elements.
• These contrast individualism and meritocratic
  forms of organization and tend overall to unify
  the Japanese in their response to gaijin (or
  outsiders).

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Hai ? Yes

• Hai can mean one of at least four levels of yes
• recognition, but not necessarily understanding
• understanding, but not necessarily acceptance and
  agreement
• responsibility, understanding, but must consult
  with others and secure their agreement before
  acceptance and
• agreement, which means understanding, agreement
  and acceptance.
• The non-verbal signals from the speaker have to
  be understood to determine, which yes is being
  meant.

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Economic characteristics
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Japanese economy

• Japans economy, combined with its productivity
  and the average wealth of its population, make it
  the second largest economy in the world after the
  USA.

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Rapid growth in the early years

• Japans rapid growth in the early years stemmed
  from factors such as
• the traditional relationship between government
  and business
• its unique capital markets (national finance and
  investment systems)
• its traditionally strong keiretsu groupings of
  firms
• Keiretsu a business group consisting of a host
  of companies and banks linked through ownership
  and/or joint ventures.
• the role of the corporation in society, and the
  role of the employee in the firm.

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Table 17.1 Economic and trade data for
Japan Sources http//www.oecd.org/statsportal/
http//www.meti.go.jp/english/statistics/index.htm
l http//www.jetro.go.jp/. IMF World Economic
Outlook and EconStats Bureau of Labor
Statistics US Census Bureau CIA, The World
Factbook, 2007 JETRO, Trade and Investment
Statistics, Japans International Trade in Goods,
March 2007
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Table 17.2 Japans FDI imbalance (billions of US
) Source UNCTAD, World Investment Report, 2006
17
Table 17.3 Japans FDI inflows and outflows by
source and destination, 2005 Source JETRO, 2006
White Paper on International Trade and Foreign
Direct Investment, pp. 10, 12, http//www.jetro.go
.jp/en/
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Figure 17.1 Trends in Japans trade by
country/region exports from Japan Source
Statistical Handbook of Japan 2008 by the
Statistics Bureau of Japan
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Figure 17.2 Trends in Japans trade by
country/region imports to Japan Source
Statistical Handbook of Japan 2008 by the
Statistics Bureau of Japan
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Japan and China the new Asian powerhouse?

• Trade and FDI flows between Japan and China are
  growing particularly quickly, raising the
  potential of a powerful axis of economic growth
  in Asia.
• Japans technological leadership, its excellence
  in innovation, its large, wealthy market and its
  footholds in Europe and the US.
• Chinas low-cost manufacturing base and its
  evolving, large but low-income market.

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Business characteristics
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Manufacturing strengths

• A variety of attributes underlie Japanese
  manufacturing competitiveness.
• attention to quality
• quality circles (QC) and total quality management
  (TQM).
• strong manufacturercomponent supplier linkages
• just-in-time (JIT) and keiretsu relationships.
• ability to cut production costs
• just-in-time and flexible and lean
  manufacturing techniques etc.
• a high level of automation and use of robotics
• higher degree of credibility and responsibility
  given to engineers and technical expertise
• kaizen or continuous improvement, and a focus at
  all levels on incremental productivity
  improvement and customer-led product development.

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Strong applied RD

• Japan has traditionally spent more than most
  other countries on RD. In 2005, 3.18 of the
  nations GDP was spent on RD, compared to 2.68
  in the US and just 1.84 in the EU27.
• Around 78 comes from industry, the highest
  amongst OECD countries.
• Contrary to popular myth the Japanese Government
  has always spent relatively smaller amounts on
  RD compared to other advanced countries (this is
  partly related to the low level of defence
  spending).

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Figure 17.3 Company spending on RD Japan
compared Sources M. E. Porter and C. H. M.
Ketels, UK Competitiveness Moving to the Next
Stage, DTI Economics Paper No. 3, Department of
Trade and Industry, UK Government and the
Economic and Social Research Council (ESCR),
2003, at http//www/.dti.gov.uk.
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Figure 17.4 International patenting output
Japan compared Sources US Patent and Trademark
Office, 2002 M. E. Porter and C. H. M. Ketels,
UK Competitiveness Moving to the Next Stage, DTI
Economics Paper No. 3, Department of Trade and
Industry, UK Government and the Economic and
Social Research Council (ESCR), 2003, at
http//www.dti.gov.uk
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Keiretsu

• The renowned Japanese corporate groupings or
  keiretsu, characterised by cross-shareholdings
  and regular meetings between executives,
  represent more or less closely tied groups of
  integrated businesses.
• There are broadly two types of keiretsu, the
  horizontal (kinyu) type and the vertical,
  manufacturing keiretsu.
• In the early 1980s the top six keiretsu alone
  directly accounted for about 5 of the Japanese
  labour force and 16 of total Japanese corporate
  sales.

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Figure 17.5 The Fuyo keiretsu group before
restructuring Source Sir H. Cortazzi, Modern
Japan A Concise Survey (London Macmillan,
1993), p. 132
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Distribution, retailing and customer-orientation

• Associated with the keiretsu industry groupings
  are multi layered distribution and retail
  networks in Japan.
• This tied system of distribution, bound by
  strong face-to-face ties between sellers and
  buyers at each level, adds substantial costs to
  the final product.
• Many elements of this complex distribution system
  remain in Japan today. The multi tiered
  distribution hierarchy has become more
  simplified, however, driven by the growth in
  discount stores and cost-reduction measures.

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Japanese corporations
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Table 17.4 The top 40 Japanese firms Note F/T
foreign/total Surendar classification (of
firm). Data are for 2003. u United Kingdom l
Americas z United States j JapanD
home-region oriented S host-region oriented B
bi-regional G global Sources S. Collinson
and A. M. Rugman, The Regional Nature of
Japanese Multinational Business, Journal of
International Business Studies, vol. 39, no. 2
(2008), pp. 215230
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Table 17.4 The top 40 Japanese firms
(Continued) Note F/T foreign/total Surendar
classification (of firm). Data are for 2003. u
United Kingdom l Americas z United States
j JapanD home-region oriented S
host-region oriented B bi-regional G
global Sources S. Collinson and A. M. Rugman,
The Regional Nature of Japanese Multinational
Business, Journal of International Business
Studies, vol. 39, no. 2 (2008), pp. 215230
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Japanese enterprise system

• In one of the most extensive studies of the
  Japanese enterprise system Fruin (1992)
  highlights high productivity, functional
  specialization and manufacturing adaptability as
  the distinguishing hallmarks of Japanese firms.
• He identifies these attributes at three,
  connected levels the factory, the firm and the
  inter firm network.

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Characteristics of Japanese management

• We can distil some of the main characteristics of
  the generic Japanese management style as
• Effective communications internally and with
  outside firms, and the use of cross-disciplinary,
  cross-business and cross-functional workshops.
• Less separation of RD, design, manufacturing and
  marketing functions.
• Life-time employment, low labour mobility and
  substantial investments in training. There is
  also a strong emphasis on training on-the-job and
  job-rotation within the firm.

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Characteristics of Japanese management
(Continued)

• Managers as problem definers, not firefighters
  and as educators and mentors, not
  disciplinarians. This is underpinned by the weak
  links between performance and pay and the low
  wage differentials between workers and managers
  in the age-related hierarchy.
• Strong group/team ethic, loyalty and motivation
  combined with competitiveness between teams.

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Characteristics of Japanese management
(Continued)

• Strict formal hierarchy combined with strong
  underlying informal networks and a tendency
  towards consensus-based decision making
  (horizontal promotion for high-fliers and a
  lack of outsiders entering the firm at senior
  levels).
• General long-termism with a focus on growth and
  employment stability and market share rather than
  profits and shareholder dividends.

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Kaisha (company)

• Abegglen and Stalk (1985) sum up some of the
  distinctive characteristics of Japan as the 3
  Ms.
• marketing direct links with consumers via
  retailers and wholesalers and strong customer-led
  product development
• money cross-shareholding and the lack of outside
  pressure for short-term returns and stock price
  improvements
• manpower strategy worker involvement, loyalty,
  effective team-working, and devolvement of
  responsibility combined with hierarchy.

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A changing nation
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A changing nation

• Starting in the early 1990s Japan experienced its
  worst economic recession in the post-war period.
• Between 1990 and 2000
• unemployment grew from 2.1 to 4.7
• GDP growth fell from 5.1 to 1.9
• motor vehicle production fell by 25
• the sales of large department stores slumped by
  13
• residential land prices in Tokyo dropped by 55.

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A changing nation (Continued)

• Alongside this economic slump, significant social
  and cultural developments have resulted in an
  unprecedented degree of tension between
  traditional and modern ways of living and
  working.
• an increase in the purchase of foreign goods
• the rise of a value for money mentality
• a higher reliance on equity finance for MNEs as
  opposed to bank loans.

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Figure 17.6 Bank group consolidation in Japan
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Figure 17.7 Declining cross-shareholding in
Japan Note Average proportion of shares in a
company held by companies whose shares are held
by this company Source M. Abe and T. Hoshi,
Corporate Finance and Human Resource Management
Evidence from Changing Corporate Governance in
Japan, Dokkyo University and RIETI presentation,
2003
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Table 17.5 Shareholding at market value Note 1
The market value of public pension funds is not
included in that of Annuity Trusts. 2 Foreigners
non-Japanese corporations and individuals. 3 The
market value of own shares held by a listed
company is included in a type to which such
company belongs. Total market value of own shares
held by listed companies in 2007 Survey is
12,494.5 billion yen, accounting for 3.12 of
total market value of all companies surveyed. 4
Figures less than the unit are omitted, except
that in the case of percentage figures and
average figures, a fraction of 0.5 or more is
counted as a whole number and a fraction less
than that is omitted
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Figure 17.8 Cross-border MA activity in
Japan Source JETRO, White Paper on International
Trade and Foreign Direct Investment, 2007,
http//www.jetro.go.jp/en/stats/
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Table 17.6 Outin MAs in major developed
countries and value of inward FDI (cumulative
total, 19992003) Note 1 The out-in MA rate
indicates the proportion of the MA market in
each country accounted for by MAs where the
ultimate parent company of the acquirer is
foreign 2 Figures for inward FDI indicate the
cumulative net flow on a balance of payments
basis Sources Prepared from Thomson Financial
data (as of March 18, 2004) and OECD data
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Restructuring of corporations
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The decline of manufacturing and distribution
keiretsu

• Despite rationalization, consolidation, and a
  significant growth of MAs in key sectors,
  Japanese companies are still having to
  restructure their operations substantially in the
  face of longer term pressures, including
• more expensive capital
• growing competition from low-cost Asian
  producers
• declining prices of key manufactures,
  particularly electronics and autos
• a slowing domestic economy
• growing inroads into the domestic economy by
  foreign competitors.

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Restructuring and reorganization

• Japans firms now
• Reduce cross-shareholding.
• Avoid giving their usual suppliers a guaranteed
  business, encouraging them instead to compete
  with each other on price.
• Bring more inputs from abroad so a more
  price-driven domestic market and freer flows of
  imports has evolved.
• Decrease the use of exclusive agreements with
  single distributors or sales organizations.

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Other changes

• The growth of outward-FDI and off-shore
  manufacturing.
• The decline of life-time employment and changing
  HRM practices.
• Diversification strategies.

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Transforming the Japanese company

• Examining the above changes, Michael Porter and
  colleagues analyzed the challenges facing
  Japanese managers and came up with the following
  guidelines for transforming the Japanese company.
  
• Create distinctive long-term strategies rather
  than imitating close rivals break out of the
  consensus and do something different.
• Expand the focus of operational effectiveness
  i.e. improve office-level productivity as well as
  plant-level efficiency.
• Learn the role of industry strategy in structure
  among a number of strategic changes, firms
  should avoid getting locked into price-based
  rivalry.

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Transforming the Japanese company (Continued)

• Shift the goal from growth to profitability
  focusing on market share was only possible with
  patient capital (linked to keiretsu and
  traditional capital markets), push for
  performance-related rewards.
• Reverse unrelated diversification stick to
  your knitting pare down to your core
  competencies and let other firms do the rest.
• Update the Japanese organizational model change
  internal practices, away from hierarchy and
  consensus towards meritocracy and
  entrepreneurship.
• Move away from incremental change become more
  flexible and responsive to suit the new
  competitive environment.