Japan’s Business and Economy

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BusinessFour Stages in an Evolving Economy: Premodern, Prewar, Post-war, Post-Bubble.

Two Business Challenges: Employment System Reform, Business Organization Reform

What happened to the economic miracle?

What foundations did Japan have for its rapid economic development?

How has the structure of the Japanese economy evolved over time?

What role has the Japanese employment system played in Japan’s growth and its present lack of growth?

What role has Japan’s style of business organization played in Japan’s growth and its present lack of growth?

The Blue Diode Story

Shuji Nakamura beat the titans to blue LEDs and lasers, potentially revolutionizing lighting and data storage

Nakamura invents the blue diode at Nichia Over the next 10 years, as he coaxed more and more light out

of gallium nitride and shot far ahead of his competitors, Nakamura put together a string of achievements that for genius and sheer improbability is as impressive as any other accomplishment in the history of semiconductor research. And it is all documented in a trail of literature—essentially all of it written in secret—almost as stunning. Between 1991 and 1999, he authored or co-authored 146 technical papers, 6 books and 10 book chapters on gallium nitride semiconductors. Nakamura’s publishing exploits largely escaped the company’s notice because he published his research in fairly obscure journals. He was nevertheless caught once or twice and agreed to abide by the no-publishing rule but then continued to quietly defy it. Nichia was no victim, though: because of Nakamura’s work, the company was awarded 68 patents in Japan and 13 in the US, with many others submitted and yet to be decided.

From Scientific American

Nakamura leaves Japan for the US (UCSB)

Last October, having done everything he wanted to with gallium nitride and weary of a Japanese industrial R&D system that he characterizes as "communist," Nakamura decided to leave Nichia. Though his inventions had swelled Nichia’s profits from under $100 million to over $400 million, Nakamura was being paid only $100,000 a year, he says.

Asked what he wants to do now, he is blunt, if a little nonspecific: "I want to achieve the American dream," he exclaims, laughing. "That’s why I came here. I couldn’t achieve the American dream in Japan. Here, I can start a venture company—in five or 10 years, if I could invent a new device. To get funds, I’ll have to keep working on nitride devices, because I am famous for nitride devices."

From Scientific American

Nakamura sues for his share

On January 30, 2004, the Tokyo District Court handed down a landmark ruling ordering Nichia Corporation to pay a whopping ¥20 billion to Nakamura Shuji for an invention he made while working for the Tokushima-based company. Nakamura had sued Nichia claiming that he was entitled to a share of the profits from his breakthrough invention of the blue light-emitting diode.

The court declared that Nakamura made his invention "with his individual power, based on completely original thinking," calling it "an utterly exceptional example of a worldclass invention eagerly awaited by the industrial world" made in advance of research institutes around the globe by a man "working in a poor research environment at a small company."

A Japanese Scientist’s View Nakamura’s invention built on the work of others Company (Nichia) risked ¥500 million in Nakamura’s

project and his own development--more than large firms

Others in Nichia made important discoveries--especially white LED

Nichia risked ¥2.1 billion in production and made markets

Company rewarded Nakamura ¥62 million in bonuses and rapid advance

Others had patented similar devices

Blue Diode Story

So what?

Premodern foundations of industrial development

Skills and technologies Education and discipline Local and national markets Cash economy Entrepreneurs and business

organization

Pre-war industrial take-off Government initiatives-

institutional and industrial

Development of large corporations: the Zaibatsu

Development of the dual economy

Post-war shift from labor intensive to knowledge intensive development

Three stages: Rebuilding (1945-1952) High growth (1953-1973) Restructuring (1974-1990)

Rebuilding (1945-1952) American reforms, reverse

track and fiscal restraint Capitalist-labor compromise Korean war rescue Catch up to the west Economically

High growth (1953-1973)

Income doubling plan Government targeting

of basic industries Preferential trade and

protectionism Investments in

education, equipment and R&D

Dependence on cheap oil and raw materials

The environmental cost of rapid growth

Restructuring (1974-1990) The oil crises Targeting of knowledge intensive industries and

‘sunset’ industries Elaboration of the dual economy: Assembly

industries, microelectronics, mechatronics Shift to a service based economy Trade friction and foreign investment Inflation of the bubble economy

The Trade

Balance

Setting Sun?

The post-bubble economy (1991-): stagnant growth but continued development The bursting of the bubble Banking and insurance problems Deregulation of a divided economy A graying economy Internet economy Cultural economy Ecological economy

Real GNP Growth from 1980 to 1999

The Graying of the Japanese Economy

Growth of Cellular Phone Use

The Exam Why does Togashi’s company have a marathon team?

This film shows a contest between two universal principles of Japan’s economy. Which one is winning?

Do you think there is any linkages between what is going on in the education system and the economic system?

What is an example of tatemae and honne?

How does Togashi’s company get rid of him?

Employment System Reform

The second most important group Foundations of Japanese

management Benefits of Japanese management Costs of Japanese management Reforms

The second most important group

Group orientation: business efficiency and culture Individual expression: opportunities and security Universal principles: market discipline Hierarchy: consensus formation within and

between corporate levels

Foundations of Japanese management

Lifetime employment Seniority system Enterprise unions

Benefits of Japanese management

Mutual commitment Job rotation and training Openness to change and

participation

Ringi Seido--Consensus Management

Bottom up system where lower ranking managers/employees initiate changes

New initiative moves up each level of organization where it is reviewed and stamped for approval/disapproval

Approval must be gained by all departments affected by change

Acts as corporate record and maintains order of the system

Ringi Seido--Consensus Management Advantages1. Encourages horizontal

communications.2. Diffuses responsibility,

thereby avoiding loss of face.3. Allows fresh ideas to rise up

the organization from lower levels of management.

4. Allows capable lower-level managers to demonstrate their abilities.

5. Allows more information to be brought to bear on decisions.

6. It reduces risk and internal conflict.

Disadvantages

1. Process is extremely slow.

2. In some systems little review of the proposal is allowed.

3. Political deals can have impact.

4. Alternative strategies may not be discussed.

5. Diffusion of responsibility may result in avoidance of responsibility and scrutiny of proposals.

Costs of Japanese management

Long working hours and Karoshi (death by overworking)

Tanshin funin (assignment away from home)

Assignment to subsidiary firms Frustration and inefficiency due to less

weight put on merit based advance Madokiwazoku (window tribe),

Katatataki (tapping on the shoulder)

Osaka crash is just the latest in a series of industrial accidents Experts saw Monday's train crash as part of a rising trend of

industrial accidents in Japan. A spate of accidents - including leaks at nuclear power plants

and fires at oil refineries - prompted the Ministry of Economy, Trade and Industry to set up an accidents panel last year to look for ways to put a stop to the trend.

Reasons it has given for the incidents include poor supervision of staff and inexperienced workers being given complicated tasks.

Experienced staff, being higher-paid, older and more experienced, have been among the first to be "restructured" - the euphemism for laid off - as companies try to reduce their wage bills.

Their jobs are now being done by younger people who have had less time to pick up the skills required of them.

Osaka crash is just the latest in a series of industrial accidents The driver of the train involved in Monday's crash in

Amagasaki was 23 years old and had only been driving trains for 11 months.

The JR West driver had been reprimanded twice, once for over-shooting a platform by 100 metres and the second time for appearing to be very tired while driving. At the last stop before Monday's accident, he had again overshot the platform by 40 metres.

Mr Itazaki said Japanese industry was increasingly aware of the need to have older workers share their knowledge with new recruits. JR West recently introduced a system in which retiring drivers instruct their replacements.

Reforms

Greater concentration of core work force

More emphasis on merit based advance

More emphasis on specialization Greater allowance for job hopping

Kobayashi Yotaro: CEO Fuji Xerox, Chairman Keizai Doyoukai

It may be true that downsizing is required to meet the market's short-term expectations, but we mustn't let visions of rising stock prices triggered by such restructuring hypnotize us. We must discern between downsizing moves that are urgently required and those that aren't. As managers we may be able to deal with our firms' surplus employment through retraining instead of layoffs. And we shouldn't just say that the market will never listen to our message if we take this approach. This is the kind of leadership the rank and file want to see. There's a world of difference between employees who live in constant dread of getting terminated unexpectedly and those who know that, though the market environment is harsh, their company's top executives are handling the situation with them in mind.

Kobayashi Yotaro: CEO Fuji Xerox, Chairman Keizai Doyoukai I'd say that if you want to keep corporate employees and civil

servants motivated, if you want to sustain their vitality and keep them interested in what they're doing, you need to take proper care of family ties. The organization has to be family-friendly. Somewhere along the line the corporation clearly began to neglect this. Workers need to be able to spend time with their families. Attention must be paid to relationships between husbands and wives, between parents and children. Some may say we'll never win out in competition with China if we let such niceties distract us. But is the way to deal with the Chinese challenge really to heed the old cry of "work longer, work harder"? One of the keys here is precisely the issue of knowledge. Giving workers time off won't automatically cause them to accumulate knowledge, of course, but that's one of the things you can do to sustain the motivation that leads to knowledge acquisition. And I think it's very important to keep young people from developing a standoffish attitude toward jobs.

Matsushita’s Three Principles of Management

Management by all: role of team leader is to run at the head of the group, pull everyone along, and to encourage slower members to pick up new skills that will help them run faster.

Meritocracy: depends on everyone having opportunity to learn new skills

Respect for human dignity: instilling in employees a goal oriented attitude that allows them financial and creative rewards

Examples of Matsushita Changes

21st Century project teams: dominated by twenty and thirty year olds because they will inherit the company

Panasonic Spin-Up Fund: ¥10 billion fund to encourage employees to set up on subsidiary companies

Toyota’s Evolutionary (and organizational) Learning Capabilities

Change: incremental and emergent (messy) Selection: how will change help customers,

improve competitiveness, reduce costs, improve quality, shorten delivery time?

Preservation: diffusion and internalization of changes throughout the company by use of rules and standards

How typical is Japanese management?

A full reality for the large firm and government employed minority

A model for small and medium sized businesses

The excluded temporary and female workforce

Potential and risks in the original family model of a business

Business Organization Reform

Ownership and governance What has happened to Japan Inc.? Resilience and changes to group ties

Ownership and governance

Who owns Japan’s large corporations and for what purpose?

Interrelations between people’s savings, government, banks, companies and stockholders

Impact on corporate governance

Interrelations between people’s savings, government, banks, companies and stockholders

Taxes

Savings & Insurance

Politicians

Ministry of Finance

Banks etc.Companies

Stock- holdersPeople

What has happened to Japan Inc.?

Early role of ministries and government corporations in governing corporations

Difficulty of guidance in a more complex, open economy

Corporate demand for freedom Changing political and bureaucratic priorities

Resilience and changes to group ties

Bank and industrial keiretsu groups Ties: cross-share holding, services

and subcontracting, personnel, university, group culture

Benefits of the ties: structured competition, stable development

Costs of the ties: support of weak companies; opportunity costs to companies and economy

Reduction of cross-share holding, diversification of relations

Future of Mitsubishi Poses a Test for Japan As Japan’s Mitsubishi industrial group huddles to plan a rescue

of sister company Mitsubishi Motors Corp., its actions will serve as a test for just how much Japan has shed--or hasn’t shed--old business practices.

What is remarkable is that the Mitsubishi companies seem so uncertain about what to do. The group, founded 34 years ago as a family-owned industrial group, maintained close ties even after the family lost ownership after World War II. As recently as a few years ago, the Mitsubishi companies simple would have circled the wagons and bailed out the car maker no matter what the cost. But the old group bonds are starting to erode. In their place has arisen a colder business logic dedicated to the sorts of priorities that have long governed U.S. companies: shareholders, credit ratings, and the bottom line.

“This is a good chance to see how the group relationship now works,” said mamoru Yamazaki an economist at the Tokyo office of Barclays Bank. Asian Wall Street Journal 27/4/04

What happened to the economic miracle?

What foundations did Japan have for its rapid economic development?

How has the structure of the Japanese economy evolved over time?

What role has the Japanese employment system played in Japan’s growth and its present lack of growth?

What role has Japan’s style of business organization played in Japan’s growth and its present lack of growth?

What happened to the economic miracle?

Do you think the Japanese management system will survive?

Should the ties between Japanese companies be weakened further?