C H A P T E R 1 8
Japan
Chapter objectives
2. Understand why Japan is a difficult but rewarding market for foreign firms to enter.
4. Explore the ongoing changes in Japan and the implications for Japanese firms, their
collaborators and their competitors.
Chapter summary
1. The current strengths and weaknesses of Japanese firms result from their evolution in a
2. The Japanese business environment was traditionally characterized by: strong interfirm
3. Sociocultural factors that supported the Japanese way of doing business include ideals of
4. Japanese firms are traditionally loyal to employees who tend not to move company often,
5. The Japanese market has traditionally been difficult for foreign investors to break into,
6. Japan is changing. Growing social and political heterogeneity alongside a prolonged
economic recession is creating unprecedented tensions and forcing drastic corporate
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7. Changes in Japan are creating investment, mergers and acquisitions (M&A) and market-
entry opportunities for foreign firms.
8. The growing regional Asian economy is centered on the major trading partnership between
Japan and China.
Chapter outline
Introduction
Political, social and cultural characteristics
A traditionally strong government role in the economy
Distinctive cultural characteristics
Economic characteristics
Japan and China: the new Asian powerhouse?
Business characteristics
Manufacturing strengths
Japanese corporations
A changing nation
Restructuring capital markets
Deregulation, increased M&A and inward FDI
Restructuring corporations
The decline of manufacturing and distribution keiretsu
The growth of outward FDI and offshore manufacturing
The decline of lifetime employment and changing HRM practices
Diversification strategies
Conclusions
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
Lecture outline
A. Introduction
1. The Japanese economy grew at an average annual rate of 8 percent between 1950 and
1973, outpacing growth rates in the United Kingdom and the United States of America.
B. Political, social and cultural characteristics
1. Japan consists of four main islands (Hokkaido, Honshu, Shikoku and Kyushu) and a
number of smaller islands. The country is approximately the size of California and over
2. There are approximately 128 million people in Japan. The population is densely
concentrated, with approximately 50 percent of the people living in or around the three
3. Until the end of the 1980s, Japan could be characterized politically, socially and
culturally as a highly stable, conservative and homogenous country. Economic change
4. The branches of the Japanese government are most 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. The
5. Two key ministries were at the heart of Japans post-war reconstruction: MITI (Ministry
of International Trade and Industry) which in 2001 was replaced by METI (the
Ministry for Economy, Trade and Industry) and the MOF (Ministry of Finance).
6. The early 1990s saw the start of a series of restructurings in Japanese politics to
7. A strong sense of collectivism, rather than individualism, tends to dominate many
aspects of Japanese life. Within companies, certain characteristics have strong religious
roots, including honor, respect, sincerity, loyalty (chu), duty, obligation or
8. The Japanese school system is characterized by a centrally regulated curriculum,
conformist attitudes amongst pupils, teachers and parents, high standards and a focus on
9. Hai can mean one of at least four levels of yes: recognition, but not necessarily
understanding; understanding, but not necessarily acceptance and agreement;
C. Economic characteristics
1. Japans economy, combined with its productivity and the average wealth of its
2. Japans rapid growth in the early years stemmed from factors such as the following: the
traditional relationship between government and business; its unique capital markets
4. 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
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
D. Business characteristics
1. A variety of attributes underlie Japanese manufacturing competitiveness: (a) attention to
quality (quality circles (QC) and total quality management (TQM)); (b) strong
2. Japan has traditionally spent more than most other countries on R&D. Japan spent 3.18
percent of the nations gross domestic product (GDP) on R&D, compared to 2.68
3. The renowned Japanese corporate groupings, or keiretsu, characterized by cross-share
holdings and regular meetings between executives, represent more-or-less closely tied
4. Associated with the keiretsu industry groupings are multilayered distribution and retail
networks in Japan. This tied system of distribution, bound by strong face-to-face ties
E. Japanese corporations
1. In one of the most extensive studies of the Japanese enterprise system, Fruin (1992)
2. We can distill some of the main characteristics of the generic Japanese management
style as (a) effective communications internally and with outside firms and the use of
cross-disciplinary, cross-business and cross-functional workshops; (b) less separation of
R&D, design, manufacturing and marketing functions; (c) lifetime employment, low
3. Abegglen and Stalk (1985) sum up some of the distinctive characteristics of Japan as
the 3 Ms: (a) Marketing: direct links with consumers via retailers and wholesalers and
F. A changing nation
1. Starting in the early 1990s, Japan has experienced its worst economic recession in the
post-war period. Between 1990 and 2000, unemployment grew from 2.1 to 4.7 percent,
G. Restructuring corporations
1. The system of cross-shareholding has become increasingly diluted through reductions in
mutual equity stakes. In their drive to cut costs, large manufacturing firms in Japan now
2. There has also been a decline in the use of exclusive agreements with single distributors
or sales organizations. In the past these were the norm, and in most sectors it was
3. 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: (a) create distinctive long-term strategies rather than imitating
close rivals; break out of the consensus and do something different; (b) expand the
Rugman and Collinson, International Business, 6th edition, Instructor’s Manual
H. Conclusions
1. Japan continues in a period of political, economic and social transformation.
Corporations have been forced to radically alter the way they organize and invest.
2. Much of this chapter has looked at the traditional way of doing business in Japan, the
unique capital markets, keiretsu, demanding customers, lifetime employment and the
traditional strengths and weaknesses of Japanese firms. These are enduring facets of
Answers to review and discussion questions
1. List some of the factors underlying the competitive advantages of Japanese firms,
developed during the rapid growth era of the 1950s, 1960s and 1970s.
2. What kinds of social and cultural characteristics of the Japanese underlie their
proficiency in manufacturing?
3. How do keiretsu structures promote process and product innovation in Japanese firms?
4. Why have inflows of FDI into Japan historically remained lower than FDI outflows?
5. How would a foreign firm wanting to establish a sales and marketing operation in
Japan need to adapt to succeed?
6. Why has the economic recession in Japan resulting in outflows of manufacturing
investment?
7. What have been the main advantages and disadvantages for many Japanese firms of
relying on domestic markets rather than internationalizing?
8. How can we explain Japans deepening trading relationship with China?
9. What has triggered the restructuring of capital markets in Japan, and what have been
the effects on Japanese corporations?
10. How can an economy in recession present new opportunities for foreign investors?
11. What strategic and structural changes are many Japanese firms making in response to
the changing economic and competitive environment they face?
12. Why have senior Japanese managers shown a growing admiration for some top
foreign CEOs and management gurus?
Answers to real cases
Renault and Nissan: no pain, no gain
1. What broad economic and specific corporate pressures have resulted in the need for a
radical shake-up of Nissan?
2. In the context of traditional Japanese employment and working practices and
interfirm relationships, why are the changes being pushed by Renaults Ghosn
considered radical?
3. What has accounted for Ghosns success to date with the Nissan restructuring?
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4. In what ways are the two companies better together?
Canon group
1. Explain why, over the course of Canons internationalization process, certain
functions have been moved or expanded to certain global locations.
2. Why has it been important for Canon to internationalize its R&D activities?
3. Speculate as to why Canon is so unusual in its degree of independence from Japans
4. How is Canon still fairly dependent on Japan as a home base?