Business Interaction and Mutual Learning Among Japan, the US and China

Toshihiko KINOSHITA (Professor, Wasede University)

This is an English summary of Prof. Kinoshita's lecture at Waseda University on November 22, 2007, for the delegation of Chinese business executives in Guangdong Province.

First of all, let me say that Japan, whose land area is only 4% of that of China and lacking mineral resources, has now become one of the richest, most equitable and most stable countries, supplying high-quality and reasonably priced goods and services in the world market. Before WWII, the quality of Japan's civil technology was relatively low, although its military technology was fairly high, and Japan had to restart from ashes in the aftermath of the defeat of the war, which caused its neighboring countries much trouble. Meanwhile, the US produced a large number of new technologies (mainly, mass production technologies), and went far ahead of Japan technologically.

Thus, Japan's postwar economic revival started with the introduction of American technology and its own effort for product quality improvements, where the US became Japan's teacher in business management. As a result of frequent visits of Japanese business people to the US, hearings from US companies, detailed reporting on US management, "kaizen" for production processes, new equipment investment, public-private cooperation on R&D, etc., Japan managed to overcome the "oil crises" twice in the 1970s and captured a large share of the world's high-tech product market. By the beginning of the 80s, Japanese products, along with German products, were regarded by many Americans as threats to their industry.

In the 80s and the 90s, however, Japan had to face the "trade war," the Plaza Accord and the Structural Impediment Talks with the US, and the subsequent high value of the yen and the bubble economy, which was partly caused by Japan's wrong monetary policy, put Japan in a very difficult position. It was so severe that it took more than ten years for Japan to revive its economy.

China's government, business and people can learn a lot from Japan's trial and error process in its recent history for the sake of their further economic development for the future. Since Japan and China are geographically close to each other with an increasing number of people interacting between the two countries, Japanese and Chinese people should learn from each other, based on their history, in order to overcome cultural and social barriers between them and to achieve a common goal for mutual prosperity.

Next, for the sake of Chinese observers (especially in such advanced regions as Guangdong Province), let me point out the importance of mutual learning between Japanese and US businesses about each other's strengths throughout the postwar period, although the two countries had to experience severe trade frictions and even serious political tensions between them along the way. Probably the most notable example is Japan's high product quality, which is originally due to Japanese adoption of a scientific quality control method from the US in the 1950s, when Japan invited Dr. Edwards Deming, virtually unknown in the US then, and launched a nationwide movement to introduce Dr. Deming's QC method and establish a QC system to check exporting products, resulting in a rapidly improving quality of Japanese products, especially in the high-tech field, surpassing US products in terms of quality. It was much later, actually in the early 80s, when US government officials and business people, who were impressed with Japan's high product quality in general, found out about Dr. Deming who was living in Washington and launched a movement to adopt his QC method among US businesses.

Furthermore, many US companies in various fields tried to improve their competitiveness in the 80s and the 90s by learning from some successful Japanese business models, as well as internal training systems, especially introducing such methods as flexible (multi-product and small-lot) production for customer satisfaction, JIT for quality improvement and cost reduction (Toyota production system), cooperation with group firms to speed up new product development. These methods, combined with their own strengths such as originality and IT orientation, have led to overall optimization for each business organization and improved competitiveness for many industries in the US. For example, Motorola and GE are among the companies that were most eager to adopt these approaches. As a result, along with government strategies, the US economy revived by the mid-1990s.

For the last ten years or so, since around 1990, however, it has been Japan's turn to look to Anglo-American business models and to create a "hybrid Japanese management" (a term proposed by myself a couple of years ago) for survival in the rapidly changing global economy by selectively adopting such practices as quick decision-making, ROE and other indexes to indicate capital efficiency, emphasis on selection and concentration, frequent M&As, performance-based employee evaluation, etc. to combine with Japan's original strengths in terms of team work, internal production of machines and parts with "kaizen" efforts, high R&D ratios, black box methods, etc. It is also important to point out that quite a few small and medium sized companies in Japan excel in quality of products or parts, surpassing many big businesses, and possess a dominant share of their respective niche markets in the world, where they are often approached for business transactions by multinational corporations overseas.

As for Japan's business relations with China, especially Guangdong Province and other advanced regions, where industries are being restructured from light manufacturing to higher value-added industries, there is little doubt that Japanese companies will try to strengthen their relations with Chinese companies and local communities, not only in the traditional fields of production and distribution, but also in the areas of infrastructure investment as well as services such as finance and insurance. Steady inflow of foreign capital into such advanced regions seems to reflect this fact. While counterfeiting is bothering Japanese and other foreign companies in China, and should be more effectively dealt with by strengthening the country's intellectual property rights regulations, Chinese business people can learn a lot from Japan's business approach, paying attention to details to ensure high quality service, an approach which they might not be able to learn at US business schools. Also, those Chinese companies that would be interested in acquiring relatively small sized companies in Japan should be aware of the strengths of Japanese small business not just in terms of hardware but rather in terms of "human-ware" such as workers' learning ability, creativity, cooperative spirit, etc. Without taking these into account, China's acquisition of Japanese small companies could be too costly after all. Money cannot buy everything, especially in Japan. Furthermore, Chinese businesses must take note of the following: (1) importance of focusing on manufacturing, more than finance or services, in a large economy like China, (2) more emphasis on compliance at the corporate level, (3) efforts to avoid the bubble economy, which hurt Japan so much, and (4) importance of own R&D, more than M&A, for long-term development.

Finally, Chinese business should learn from successful US and Japanese businesses in Asia in terms of brand strategies and intellectual property rights management. Many US multi-national corporations, especially in the IT related business, such as Apple, Microsoft, Google, Oracle and Intel have established overwhelming brand power in the world market. As global competition is becoming severer, especially in manufactured commodities, brand strategies are now considered crucially important for business survival, and Japanese companies are actively investing in R&D and pursuing their own strengths to meet consumers' preferences in Asia. Chinese companies can learn not only from those US and Japanese companies but also from such successful Chinese and other Asian businesses as Singapore Airlines, Mandarin Oriental Hotel and the Banyan Group.