Transcript Business Environment - International University College, Sofia

Lecture 21 (L8/S2)
Business Environment in Japan
Milena Malinowska
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Definitions
 Japanese economy is one of the biggest in the world
 The business environment is dominated by horizontal
and vertical conglomerates named keiretsu
 The enormous success of these companies lies in
distinctive cultural characteristics that shape all
business relations
 After 2000 the business sector started to change,
following a severe recession and pressure for reform
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Demographics of Japan (日本 Jap. Nihon)
 Population: 127 million,
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98.5 % Japanese
Tokyo: 36.6 million
Osaka (+ Kobe): 11.3
million
Median age: 44.8 years
Literacy rate: 99 %
Internet usage: 78%
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Economy
GDP 2011 ($ trillion)
15.4
 Japan is world’s 5th biggest
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11.3
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4.7
4.4
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EU
USA
China India
(Source: CIA Factbook 2011)
economy
GDP per capita: $ 34 300
Inflation: 0.4%
Unemployment: 4.8%
Current account to GDP:
3.6%
Holds 13.7% of global
financial assets
Public debt to GDP: 208%
Japan
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FDI inflows to GDP (%)
0.51
0.15
0.17
0.08
0.06
-0.02
0
1990
1995
1998
2001
2004
2007
2010
(Source: www.tradingeconomics.com)
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Transnationality Index
 TNI for host countries is based
103.7
on the average of:
 FDI inflows
 FDI stock to GDP
65.2
 Foreign affiliates’ value added
to GDP
 Foreign affiliates’
employment
39.6
21.9
(Source: Sloman & Jones, 2011)
1.1
 Japan has the lowest score
Japan
Albania
UK
Bulgaria
Singapore
Hong
Kong
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 Japanese business environment
is very hardly accessible by
foreigners
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The Gaijin (外人 Eng. foreigner)
Foreign companies hardly even enter the Japanese
market because of three main obstacles:
 Political – complex legislation to set up business, licensing,
taxation and visas
 Economic – costly to establish new business
 Cultural – unwillingness of suppliers and employees to work
with foreigners, customers prefer local products
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Japan’s place in top 500
 68 out of the world
top 500 companies
are Japanese
 Japan is number 2 in
the list (US is 1st)
 Japan’s share in the list
has been declining
(Source: Fortune Global 500)
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Hofstede’s dimensions
 PDI – is moderate, hierarchy is important in terms of status, but managers
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and employees have a close relationship
IDV – collectivist society, group decision-making
MAS – fierce competition between groups/companies
UAI – complex structures, planning, slow decision-making
LTO – companies follow long-term goals, investment for the future
(Source: http://geert-hofstede.com/japan.html)
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Business environment
Japanese rapid economic development is based on a
unique form of capitalism:
 strong government – government officials consult the
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biggest corporation (amakudari)
distinctive cultural practices applied to business – loyalty
(chu) and responsibility (giri) for the company
highly competitive environment – market share vs. profit
technological leadership – high productivity (time to
produce one car in Japan is 55% shorter than in the US)
extensive exporting – high value added products (to China
and US) = good terms of trade
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Business environment (2)
Main advantages of Japanese companies stem from:
 Attention to quality – Japanese quality circles (QC)
 Drive for constant improvement – kaizen
 High degree of responsibility of the employees
 Excellent manufacturer – supplier links
 Lower production costs – better techniques & technology
 High automation of production – use of robotics
 Very heavy R&D spending
 Extreme focus on customer satisfaction
 Dense distribution network
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The keiretsu (系列; Eng. subsidiary)
 Japanese business sector is dominated by huge conglomerates
named keiretsu
 These giant entities are comprised by numerous corporations
that possess cross-ownership in each other
 There are two main keiretsu types:
 Horizontal, trading (kinyu keiretsu)
 Vertical, manufacturing
 In the keiretsu main financing comes from the group’s bank
(bank vs. stock market funding)
 Sogo shosha (総合商社) – international trading company, that
helps the keiretsu conduct exporting (importing)
 Zaibatsu (財閥; Eng. property) – antecedents of the keiretsu,
powerful pre-WW2 (family owned) industrial and financial
entities
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Features of the
Mitsubishi (三菱)
keiretsu:
 Revenue (2011) $60
billion
 260 000 employees
(200 branches) in 80
countries
 29 companies hold
38% of mutual shares
 Multi-layered
distribution & retail
network
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Characteristics of the keiretsu
Abeggler and Stalk (1985) define the 3M as central to keiretsu
success:
 Money – cross-company ownership eliminates the pressure
for dividends, profits are extensively reinvested, focus on
growth
 Manpower – workers are loyal, employment is lifetime,
effective information flow and communication
(benkyokai), consensus decision-making (ringi), managers
as mentors
 Marketing – production is customer demand-led,
distribution and retail networks are extremely developed,
direct sales
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The 1990s – a “Lost decade”
 The period of postwar growth and economic
prosperity came to its end in the early 1990s
 The appreciation of the Yen, couple with the TSE and
real estate market crashes in 1992 triggered a severe
recession:
 GDP growth dropped from 5.1% to 1.9%
 Unemployment rose from 2% to 5%
 Car production fell by 25%
 Residential prices fell by 55%
 Consumer tastes changed – desire for Western goods
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A changing environment
 Growth of stock market financing, decline of cross-
shareholding
 Cross-border M&A increased, hence inward FDI
 Keiretsu faced following pressures:
 More expensive funding
 The other “Asian Tigers”
 Declining prices of cars and electronics
 Slower economic growth
 Foreign entrants
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The ‘new’ keiretsu
The traditional Japanese way of doing business has been
altered:
 Cross ownership declined
 Suppliers are seldom guaranteed orders, they need to compete
on prices
 Imports of production inputs increased
 Outsourcing takes place
 Exclusive agreements with sales representatives declined
 Lifetime employment decreased
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Bibliography
 Lecture is based on:
Japan (Chapter 17) in
Rugman, A. Collinson, S and Hodgetts, R. (2006)
International Business (4th eds) UK: McGraw-Hill
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