Is there anything left to learn from Japanese companies?

SAM Advanced Management Journal, Summer, 2004 by Pavel Strach, Andre M. Everett

Introduction

The 1980s witnessed general admiration for Japanese management methods and attitudes. As the GDP in Japan rose steadily from the 1960s by more than 10% every year, many authors attempted to identify the sources of the Japanese "miracle." Western companies widely applied (or copied) Japanese manufacturing systems and were still busily adopting and adapting when the glow faded. Japan experienced a decade of zero growth in the 1990s and slumped into recession. The bursting of Japan's bubble economy induced many Western managers to remove their rose-colored glasses, including a range of academics and managerial scientists who had previously endorsed the Japanese approach. For example, Michael Porter's opinion (Sanderson, 1987; Porter, 2001) about Japanese management oscillated between an appeal to follow Japanese managers and a complaint about their weak corporate governance system. Ouchi's Theory X, Vogel's Japan as Number One, McMillan's Japanese Industrial System, Pascale's Art of Japanese Management, and Schonberger's Japanese Manufacturing Techniques were almost forgotten in a flood of new problem-solving management books that focused on anything but the presumably discredited Japanese ways. A less common but still noticeable theme was "reinterpretation," as exemplified by Crawford's Reinterpreting the Japanese Economic Miracle, Smith's Japan: A Reinterpretation, and Sethi et al.'s The False Promise of the Japanese Miracle: Illusions and Realities of the Japanese Management System. However, Japan should not be ignored, even in its current apparent weakness (Katz, 2003). The present diversification of Japanese approaches can only enhance their attractiveness for Western academic and practitioner examination (Westney, 1999).

Our discussion has two major goals: to briefly summarize Japanese-style management and to identify areas that deserve the attention of Western companies today. Although Western writers commonly discuss adopting quality management concepts and differences among national and worldwide standards (e.g., the ISO 9000 and 14000 series, Baldrige Award versus Deming Prize, etc.), Japanese manufacturers are still ahead in many ways. TUV, the German technical approval association, periodically reports on the high quality of cars produced by Japanese automakers, with a noticeable rise in their relative quality documented in Table 1 (TUV, 2003). Just-in-time approaches (and even philosophies) have been widely adopted outside Japan, yet Japanese companies are still excelling in this area (Karatsu, 2003). For example, a combination of speed, flexibility, and manufacturing perfectionism put Japan back on the peak of the shipbuilding industry with a 40% world market share and the ability to build a 200-meter-ship in less than 60 days (Karatsu, 2003).

Published data about bankruptcies of Japanese firms (figures 1 and 2) indicate little change over the past five years in terms of the number and financial severity of bankruptcies. However, the most recent figures (for the first half of 2003) could be construed as giving hope that the worst may be over. The Japanese business community has traditionally relied heavily on solidarity between strong, profitable companies and weak, underperforming ones. If we consider that bankruptcies helped to eliminate the weakest, the average performance of Japanese companies would have to increase, which would be reflected in deflation, caused by not worse but paradoxically better performance and efforts for greater efficiency. The role of the yen, under foreign pressure to appreciate while internally depressed by low interest rates and a declining export surplus, is also material (Singer and Karmin, 2003).

[FIGURE 1-2 OMITTED]

Asahi Shimbun statistics from March 2003 reported that the nine leading electrical appliance manufacturers plan to invest US$16.25 billion during 2003, an increase of 14.6% from the previous year, and the four largest steel producers $2.43 billion, up 26.4% (Japan Information Network, 2003c). These numbers imply that after years of factories closing down and workforce "optimization" drives, the Japanese giants may bounce back, stronger and more competitive than ever. Econometric analysis of Japan's performance over the past 40 years shows a strong bi-directional link between output and exports (Hatemi-J, 2002)--indicating that as Japanese manufacturers and service providers increase their productivity and production, challenges to producers in other parts of the world will inevitably result.

Among the major industrial countries (U.S., Germany, France, U.K.), Japan spends the largest percentage of GDP on R&D and has the lowest number of lost work days (JETRO Invest Promotion Department, 2003). JETRO statistics appear to confirm the superiority of Japanese firms in new product development speed and quality and in specific aspects of human resource policies. OECD data show that Japan's R&D expenditure comes principally from business--at 73% of total R&D spending, the highest among all OECD nations in 2001, the most recent year available (OECD, 2003, pp. 70-71).