11

Japan – Death of a Japan – Death of a Salesman?Salesman?

Strategy & Management in Strategy & Management in the Asian Corporationthe Asian Corporation

Week 5Week 5

22

Conflicting considerationsConflicting considerations

““Opportunity is tremendous in Alaska, Opportunity is tremendous in Alaska, William. Surprised you're not up there” – William. Surprised you're not up there” – Arthur MillerArthur Miller““Japanese companies rarely have a strategy” Japanese companies rarely have a strategy” – Michael Porter– Michael PorterSuccess of global corporations based on Success of global corporations based on output expansion at home andoutput expansion at home andfavourable labour settlements (wages, hours favourable labour settlements (wages, hours of work)of work)rather than rather than sustainable competitive advantagessustainable competitive advantages

33

Porter’s viewpointPorter’s viewpoint

““The dangers of Japanese-style competition are The dangers of Japanese-style competition are now becoming easier to recognize. In the 1980s, now becoming easier to recognize. In the 1980s, with rivals operating far from the productivity with rivals operating far from the productivity frontier, it seemed possible to win on both cost frontier, it seemed possible to win on both cost and quality indefinitely”. (MP)and quality indefinitely”. (MP)

This thesis is not entirely trueThis thesis is not entirely trueBut Japanese industry’s attempt to take corrective But Japanese industry’s attempt to take corrective action was essentially self-destructive leading to action was essentially self-destructive leading to sangyo kudokasangyo kudoka-reduction in domestic manufacturing base due to -reduction in domestic manufacturing base due to shifting production overseasshifting production overseas

44

Honda motorcyclesHonda motorcycles

BCG report 1975BCG report 1975Reasons for decline in British motorcycle industryReasons for decline in British motorcycle industryLoss of market share (in previous 15 years) resulted from Loss of market share (in previous 15 years) resulted from concern with short term profitabilityconcern with short term profitabilityJapanese m/c growth based on large volume production of Japanese m/c growth based on large volume production of small m/cs in home market with volume related cost savingssmall m/cs in home market with volume related cost savingsIn 1960 only 4% of production exportedIn 1960 only 4% of production exportedChallenge to small m/c production in UK led to “segment Challenge to small m/c production in UK led to “segment retreat”retreat”Concentration on large m/c productionConcentration on large m/c productionWhen Honda entered “superbike” segment (>450cc) did so withWhen Honda entered “superbike” segment (>450cc) did so with– Higher volumesHigher volumes– Technically superior productsTechnically superior products– Cheaper pricesCheaper prices– Undercutting where necessaryUndercutting where necessary

55

Segment RetreatSegment Retreat

BCG dataBCG dataUK annual production = 14 bikes per workerUK annual production = 14 bikes per workerHonda annual production = 159 bikes per workerHonda annual production = 159 bikes per workerHonda labour cost = 1/10 of UKHonda labour cost = 1/10 of UKHonda capital costs per bike = ¼ of UKHonda capital costs per bike = ¼ of UKThe rate of technological learning tends to be related The rate of technological learning tends to be related over time to accumulated production experience as the over time to accumulated production experience as the company develops and applies lower cost methods in the company develops and applies lower cost methods in the course of conducting its business. course of conducting its business. The competitor with the highest annual model volumes The competitor with the highest annual model volumes can benefit from methods which embody up-to-date can benefit from methods which embody up-to-date technology and which rely on scale effects for their cost technology and which rely on scale effects for their cost superioritysuperiorityNoted in Rumelt 1995Noted in Rumelt 1995

Segment RetreatSegment Retreat

66

RevisionistRevisionist

Pascale (1984) argues the success was not Pascale (1984) argues the success was not premeditatedpremeditatedHonda design team had produced a good Honda design team had produced a good 50cc bike for the home market50cc bike for the home marketDevised a vague strategy to enter the mid-Devised a vague strategy to enter the mid-range market in USrange market in USWhile there attention was attracted by the While there attention was attracted by the small bikesmall bikeLuck & dealing with miscalculation is key to Luck & dealing with miscalculation is key to successsuccessRevisionist viewRevisionist view

77

Strategic intentStrategic intent

Prahald & Hamel argue success was product Prahald & Hamel argue success was product ofofCore competencies andCore competencies andStrategic intentStrategic intentHonda’s “vision” was large scale & out of Honda’s “vision” was large scale & out of proportion to realityproportion to realityEntered market with product beyond Entered market with product beyond competitors “range”competitors “range”Concentrated on this while developing new Concentrated on this while developing new products & quality engine designproducts & quality engine designStrategic intentStrategic intent

88

Honda in the US – in their own Honda in the US – in their own wordswords

America is the stronghold of capitalism, and America is the stronghold of capitalism, and the centre of the world's economy. the centre of the world's economy. To succeed in the U.S. is to succeed To succeed in the U.S. is to succeed worldwide. worldwide. On the other hand, if a product doesn't On the other hand, if a product doesn't become a hit in America, it'll never be a hit become a hit in America, it'll never be a hit internationally.internationally.

"To take up the challenge of the American "To take up the challenge of the American market may be the most difficult thing to do, market may be the most difficult thing to do, but it's a critical step in expanding the export but it's a critical step in expanding the export of our products." Takeo Fujisawaof our products." Takeo Fujisawa

99

Honda in the US – in their own Honda in the US – in their own wordswords

American Honda began its sales activities in American Honda began its sales activities in September 1959, with a tiny staff of eight. The September 1959, with a tiny staff of eight. The company's lead products were the Dream, Benly, company's lead products were the Dream, Benly, and Super Cub (called the Honda 50, in the U.S.), and Super Cub (called the Honda 50, in the U.S.), which had just made its Japanese debutwhich had just made its Japanese debutThe thinking was, they simply couldn't grow The thinking was, they simply couldn't grow without adapting their management strategies to without adapting their management strategies to the local community. the local community. Employees were hired locally, making for a total Employees were hired locally, making for a total sales force of eight people. sales force of eight people. In truth, the locally hired people proved beneficial In truth, the locally hired people proved beneficial to Honda's effort, since they had connections to Honda's effort, since they had connections with existing dealers throughout Southern with existing dealers throughout Southern California. California.

1010

Honda in the US – in their own Honda in the US – in their own wordswords

Mailings were sent to those dealers, and …. the Mailings were sent to those dealers, and …. the company ran ads in local trade papers and company ran ads in local trade papers and motorcycle magazines, hoping to entice dealers. motorcycle magazines, hoping to entice dealers. Not surprisingly, managers from the dealerships Not surprisingly, managers from the dealerships began appearing at American Honda, hoping to began appearing at American Honda, hoping to test-drive the bikes.test-drive the bikes.Having lost its main products for the time being, Having lost its main products for the time being, American Honda was forced to carry on by American Honda was forced to carry on by placing its remaining product, the Super Cub, in placing its remaining product, the Super Cub, in the spotlight. the spotlight. The Super Cub-or, the Honda 50 in the U.S.-was The Super Cub-or, the Honda 50 in the U.S.-was a performance model, featuring twice the a performance model, featuring twice the horsepower of competing productshorsepower of competing products

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Did Honda have a strategy?Did Honda have a strategy?

In UK segment retreat purely felicitousIn UK segment retreat purely felicitousPascale is partly rightPascale is partly rightPlanned entry to US on basis of (some) market Planned entry to US on basis of (some) market research research Technical failure of mid range products led to Technical failure of mid range products led to (necessary) emphasis on remaining product(necessary) emphasis on remaining productNot entirely unplanned approach – therefore, strategicNot entirely unplanned approach – therefore, strategicTomorrow the world - Prahald & HamelTomorrow the world - Prahald & HamelAgain partly rightAgain partly rightExcessive intent – yesExcessive intent – yesConcentration on core competencies – more intentConcentration on core competencies – more intentCompetencies not fully up to speed – hence research Competencies not fully up to speed – hence research TT races etcTT races etc

1212

Honda todayHonda today“Glocalization”“Glocalization”

What is Honda's global strategy? What is Honda's global strategy? It's simple — put cost-effective plants in areas that It's simple — put cost-effective plants in areas that best meet the needs of local customers. best meet the needs of local customers. We integrate plants into markets with a "Small Born" We integrate plants into markets with a "Small Born" manufacturing strategy, starting small and then manufacturing strategy, starting small and then expanding as local demand increases. expanding as local demand increases. Five Region StrategyFive Region StrategyDecision-making responsibility regarding sales, Decision-making responsibility regarding sales, manufacturing and research are afforded to each manufacturing and research are afforded to each region. region. Products that best serve the region are pushed to Products that best serve the region are pushed to the forefront of the development and manufacturing the forefront of the development and manufacturing process. process. R&D remains based in JapanR&D remains based in Japan

1313

In shortIn short

Honda ongoing strategy Honda ongoing strategy

Appears to beAppears to be

Cost reductionCost reduction

Technical competenceTechnical competence

But allied toBut allied to

Harmonisation of product to local market Harmonisation of product to local market demandsdemands

1414

Fujitsu and the American DreamFujitsu and the American Dream

3 phases3 phases1935 – 1954 positioning in telephone equipment1935 – 1954 positioning in telephone equipmentaided by links to Ministry of aided by links to Ministry of Telecommunications & NTT (national telephone Telecommunications & NTT (national telephone operating company)operating company)1954 – 1975 expanding computer products 1954 – 1975 expanding computer products (exporting from late 50s)(exporting from late 50s)Gained top domestic positionGained top domestic position1976 – onward1976 – onwardBecoming total information equipment vendorBecoming total information equipment vendor

1515

Revenue maximizationRevenue maximization

Major strategic driver is Revenue maximizationMajor strategic driver is Revenue maximizationFrom 1960 – 1990 increased 170 timesFrom 1960 – 1990 increased 170 timesVery R&D centred (R&D budgets always greater as Very R&D centred (R&D budgets always greater as percentage of sales than competitors)percentage of sales than competitors)Based its global strategy on aggressive home Based its global strategy on aggressive home competition with IBM Japancompetition with IBM JapanUsed lessons from home market to expand on same Used lessons from home market to expand on same basis globallybasis globally1980s set back1980s set back– AT&T bidding incident (optical fibre network) 1981AT&T bidding incident (optical fibre network) 1981– IBM intellectual property rights case 1982IBM intellectual property rights case 1982– Fairchild Semi-conductors takeover veto 1987Fairchild Semi-conductors takeover veto 1987

1616

Style for the 90sStyle for the 90s

1990s autonomous offshore production 1990s autonomous offshore production phasephase90s strategic issues90s strategic issuespartnership & strategic alliancespartnership & strategic alliancesaim for cross-cultural management aim for cross-cultural management (globalisation as catalyst for change)(globalisation as catalyst for change)Globalisation of R&DGlobalisation of R&DRegional development in AsiaPac (eg Regional development in AsiaPac (eg OEM agreements with Acer)OEM agreements with Acer)

1717

When in doubt – er, do the sameWhen in doubt – er, do the same

Focus on semiconductor technologyFocus on semiconductor technology8 February 20058 February 2005Electronic Devices BusinessElectronic Devices BusinessMarket SituationMarket SituationSystem chips are source of our products’ competitiveness System chips are source of our products’ competitiveness (performance, cost, delivery)(performance, cost, delivery)Technology advances exacerbating limitations of horizontally Technology advances exacerbating limitations of horizontally segmented business modelsegmented business modelSevere conditions in second half of FY 2004; FY 2005 Severe conditions in second half of FY 2004; FY 2005 conditions similar to FY 2004conditions similar to FY 2004Basic StrategyBasic StrategyContinue QCD improvements (quality, cost, delivery)Continue QCD improvements (quality, cost, delivery)Strengthen strategy of partnering with customersStrengthen strategy of partnering with customersIncrease focus on logic businessIncrease focus on logic businessContinuance of basic strategy when under stressContinuance of basic strategy when under stress

1818

Oh, Mr PorterOh, Mr Porter

Porter – Competitive Advantage: Porter – Competitive Advantage: Creating & Sustaining Superior Creating & Sustaining Superior Performance (1985)Performance (1985)Companies create competitive Companies create competitive advantage by creating valueadvantage by creating value– Lower prices – cost leadershipLower prices – cost leadership– Unique benefits – differentiationUnique benefits – differentiation– Focus – tailors products to narrow Focus – tailors products to narrow

industry segmentindustry segment

1919

Comparison in USComparison in US

Shah et al (2000) compared German, Japanese & Shah et al (2000) compared German, Japanese & US firms in US to determine business level US firms in US to determine business level strategiesstrategiesConclusionsConclusionsJapanese companiesJapanese companies– Rely on low cost in the long run – low cost strategyRely on low cost in the long run – low cost strategy– More aware of competitors’ qualityMore aware of competitors’ quality– Work closely with suppliers to improve qualityWork closely with suppliers to improve quality– Emphasize intermediaries (US adversarial approach)Emphasize intermediaries (US adversarial approach)– Use intermediaries as easier access to markets (strategic Use intermediaries as easier access to markets (strategic

alliances)alliances)

2020

DifficultiesDifficulties

Found major areas of difficulty Found major areas of difficulty implementing strategyimplementing strategy

Lack of clear goalsLack of clear goals

Lack of MIS supportLack of MIS support

Lack of communication with functional Lack of communication with functional areasareas

{same problems with US & German {same problems with US & German firms, but greater extent in Japanese}firms, but greater extent in Japanese}

2121

Good Luck or Fine JudgementGood Luck or Fine Judgement

Harvey et al (2001) consider the growth & development of Harvey et al (2001) consider the growth & development of Japanese Electronics Industry (1945-1995)Japanese Electronics Industry (1945-1995)Factors involvedFactors involvedIncrease in capital (domestic & corporate) at low rates allowing Increase in capital (domestic & corporate) at low rates allowing huge capital budgets to be thrown at new developmentshuge capital budgets to be thrown at new developmentsToshiba home appliance business equipment budgetToshiba home appliance business equipment budget¥5.6m in 1957¥5.6m in 1957¥29.5m in 1961¥29.5m in 1961Led to virtuous circle effectLed to virtuous circle effectAbility of companies to see product opportunities & exploit Ability of companies to see product opportunities & exploit themthem– Televisions (B&W)Televisions (B&W)– Televisions (Colour)Televisions (Colour)– VCRsVCRs– SemiconductorsSemiconductors

2222

Keys to growthKeys to growth

Early 50s US boost to electronics industry to supply Early 50s US boost to electronics industry to supply forces in Korean War (Special Procurements)forces in Korean War (Special Procurements)At same time academics from US lectured on need At same time academics from US lectured on need for quality in productsfor quality in productsNecessity and not being seen as a rival gave Japan Necessity and not being seen as a rival gave Japan licensing access to vital technologylicensing access to vital technologyThrough 60s Yen pegged to US$ at level of ¥360 to $ Through 60s Yen pegged to US$ at level of ¥360 to $ made products more competitive in world inflation made products more competitive in world inflation 1985 realignment of G7 currencies caused onset of 1985 realignment of G7 currencies caused onset of endaka (rapid Yen appreciation)endaka (rapid Yen appreciation)Effect on lost sales massiveEffect on lost sales massiveKyocera estimated ¥900m loss in annual sales per ¥1 Kyocera estimated ¥900m loss in annual sales per ¥1 rise in exchange raterise in exchange rate

2323

ReactionsReactions

Response was cost reduction by overseas Response was cost reduction by overseas productionproductionJapan had access to appropriate technologyJapan had access to appropriate technologyEconomic circumstances were rightEconomic circumstances were rightThe products were rightThe products were rightHuge sales growth could sustain crucial R&D Huge sales growth could sustain crucial R&D activitiesactivitiesLuckLuckCompany leaders saw potential and addressed itCompany leaders saw potential and addressed itJudgementJudgementWhat conclusions for strategy?What conclusions for strategy?Largely mobilising resources available andLargely mobilising resources available andCapitalising on good fortuneCapitalising on good fortune

2424

2525

When the bubble burstWhen the bubble burst

Post bubble strategies of overseas productionPost bubble strategies of overseas productionAre they tenable?Are they tenable?Major concern about KudokaMajor concern about KudokaBailey (2003) argues for competitive decline linked to Bailey (2003) argues for competitive decline linked to Government strategic failure (Japanese disease)Government strategic failure (Japanese disease)Ministry of International Trade & Industry targeted Ministry of International Trade & Industry targeted OF (outer focused) companiesOF (outer focused) companiesFX resourcesFX resourcesLow interest ratesLow interest ratesTrade & investment protectionTrade & investment protectionLed to excessive expansion & export oriented Led to excessive expansion & export oriented growthgrowth

2626

When the bubble burstWhen the bubble burst

Keiretsu leadership failureKeiretsu leadership failure

Strategically self-defeatingStrategically self-defeating

Drive for cost reduction has led to Drive for cost reduction has led to overseas productionoverseas production

However growth has begun to improveHowever growth has begun to improve

Even if domestic effect is Even if domestic effect is “deindustrialisation” (Bailey)“deindustrialisation” (Bailey)

2727

Policy change?Policy change?

Elder (2000) suggests that many insulative policies remainElder (2000) suggests that many insulative policies remainPromotion of specific industries is a continual thread in Promotion of specific industries is a continual thread in economic policyeconomic policyDespite a promotion of greater FDI into JapanDespite a promotion of greater FDI into JapanMakino et al (2004)Makino et al (2004)LDCs are said to be more uncertain than in DCs in both LDCs are said to be more uncertain than in DCs in both competitive and institutional environmentscompetitive and institutional environmentsOur study revealed that subsidiaries in LDCs, on average, were Our study revealed that subsidiaries in LDCs, on average, were superior in terms of both financial performance and survival superior in terms of both financial performance and survival likelihood. likelihood. The conventional perception that uncertainty in LDCs would be The conventional perception that uncertainty in LDCs would be a major obstacle to successful operation of foreign a major obstacle to successful operation of foreign subsidiaries, and thereby to achievement of satisfactory subsidiaries, and thereby to achievement of satisfactory performance, is therefore doubtful. performance, is therefore doubtful. Managers should recognize that many subsidiaries in LDCs are Managers should recognize that many subsidiaries in LDCs are in fact doing much better than subsidiaries in DCsin fact doing much better than subsidiaries in DCs

2828

The past is not another countryThe past is not another country

Although the average performance of subsidiaries Although the average performance of subsidiaries was found to be higher in LDCs than in DCs, the was found to be higher in LDCs than in DCs, the variance of performance (both financial performance variance of performance (both financial performance and survival likelihood) was also significantly higher and survival likelihood) was also significantly higher in LDCs. in LDCs. Watanebe & Hur (2004) in a study of Japanese Watanebe & Hur (2004) in a study of Japanese electrical machinery industry electrical machinery industry Posit the view thatPosit the view thatR&D in the industry is decliningR&D in the industry is decliningNeed to utilize fully potential resources in innovationNeed to utilize fully potential resources in innovationLink gross firm value to increase in intangible assetsLink gross firm value to increase in intangible assetsSuggest way forward is sustainable functionality Suggest way forward is sustainable functionality developments (service based improvements)developments (service based improvements)

2929

Keiretsu in 21Keiretsu in 21stst Century Century

Role of the KeiretsuRole of the KeiretsuKim et al (2004) suggest that strategic Kim et al (2004) suggest that strategic direction is not consensualdirection is not consensualWithin Keiretsu hierarchy of power Within Keiretsu hierarchy of power dependenciesdependencies– Effects on product strategyEffects on product strategy– ProfitabilityProfitability

Suggest inadequacy of Keiretsu Suggest inadequacy of Keiretsu groupings in sustainable developmentgroupings in sustainable development