The Japanese business environment is generally viewed as very traditional due to the very rigid labour laws and the general expectation of lifetime employment with the same employer. Consequently, in a survey of US companies with operations in Japan, “about 62 per cent said difficulties in recruiting skilled staff were a factor.” (Leadbeater, C. 1991, p.6) This system includes on-the-job training whereby employees are trained within the firm and partake in a long term programme. Also, with the prospect of rotations within the firm, employees have the opportunity to develop their professional abilities. Consequently, prospective investors should consider the costs of such training schemes that may need implementing.
In addition, the tradition view is supported strongly due to the fact that Japan has an aging population. The demographics can clearly be seen below:
Source: Anon. (2007). Business in Japan: Still work to be done. The Economist, 385(8557), p.13.
Japan’s population “is greying faster than that of any other big economy, so the old will become an increasing burden on workers. Today, one-fifth of Japanese are over 65; by 2015, the proportion will grow to one in four, or about 30m.” (Anon. 2008a, p.31) Consequently, the problem of finding a young workforce may prove operating in Japan to be difficult.
Dr William Ouchi has developed Theory Z based on the Japanese management style. This focuses on the welfare of the employees, on and off the job, as well as providing a job for life which increases loyalty. Thus employees’ morale and productivity increases. Further characteristics include collective responsibility and decision making, as well as employee evaluation on a longer term perspective. Subsequently, to control a successful workforce, these characteristics should be implemented.
Being the leader of a Pacific trading bloc, more countries are trying to emulate Japan’s success by emulating their practices. Consequently, learning the Japanese approach should be more important for foreign firms. Nevertheless, in reality this is not the case as Czinkota (1998, p.22) found “in 1991, only 1,180 U.S. students attended school in Japan, whereas more than 30,000 Japanese students came to the United States. Unless we learn to observe and absorb Japanese knowledge and know-how to a greater extent, we will continue to be surprised by “new” developments because we weren’t paying attention.” An alternative solution for investors could be to encourage and provide incentives for Japanese students who study abroad to return to Japan and work for their firm.
3. A changing nation?
Nevertheless, there are positive signs in the Japanese market as the role of lifetime employment has been questioned by many recently. Could this be a stage of transition?
Source: Anon. (2008a). Sayonara, salaryman. The Economist, 386(8561), p.61.
The above graph shows that since the last thirty years, many firms have hired new staff on part-time or contract basis compared to permanent workers. The primary reason for this is that young professionals do not want to revolve their life around their work. Consequently, this shift in employment patterns has reduced inequality by allowing more women into the workforce and pensioners to rejoin. This decline in traditional characteristics and the opening of society is positive news to prospective investors in that it enables more flexible employment practices.
4. The affect of keiretsu
“In the very short time since 1989 a Japanese word migrated to America, jumped onto the cover of Business Week, made a dramatic debut before the U.S. Congress, did a variety of television appearances, and was quickly “naturalized” into the English language. The term keiretsu may lack the cultural associations of kimono and geisha and the upscale image of sushi, but it has accomplished something that these other Japanese imports have not: it has joined America’s business lexicon.”
(Miyashita, K. and Russell, D. W. 1994, p.ix)
Keiretsu are a group of individual firms that can be viewed together due to their affiliation with one another and their networks. These can be of either horizontal or vertical hierarchy and involve the transfer of information, finance or personnel. They “stand accused of restricting the opportunities of outsiders wishing to sell to keiretsu members” and “dominate certain markets, and have been labelled as one of the most important obstacles to foreign companies trying to penetrate the Japanese market.” (Czinkota, M. R. and Kotabe, M. 1998, p.11) Consequently, for a firm such as Experian, to enter the Japanese market would be tough and a possible alternative would be to merge with a member of such a keiretsu. Nevertheless, this alternative would not be simple as the target firm would already have strong affiliations.
Furthermore, Czinkota, M. R. and Kotabe, M. (1998) have carried out a study to find out what researchers, business executives and policy makers from the US, Europe and Japan believe are the major barriers for foreign firms when entering Japan. The results identified 16 areas of concern and factor analysis showed the four major barriers to be government trade barriers, bureaucratic practices, the culture barrier (including keiretsu) and the very high level of demand from customers (Appendix 3). The high entry costs along with the keiretsu and their closed business links was identified as the most important barrier and one of the least likely to chance. This further strengthens my opinion that entry would be tough with restricted access.
There were limitations in this study, for example, there were only 60 completed responses. Two-thirds of those responses were from American members and only 13 of them were from Japanese members. In addition, the occupation of those that took part was not evenly spread. Nevertheless, it seemed that the respondents’ nationality or their occupation did not have any bearing on the final results.
5. Japanese financial keiretsu
Once the Tokyo Stock Exchange opened after the war in 1949, it was no longer the first choice for raising capital for many firms. As a result, the government enabled the development of bank-led keiretsu, which became firms’ primary choice. Consequently, every firm developed its network to include a bank to raise capital, for protection or to seek advice.
Also, in a study by Professor Paul Sheard on the main bank system in Japan, he concluded that banks act as credit monitors; “a substitute for the kind of screening and monitoring institutions that are prevalent in other capital markets, such as bond- and credit-rating institutions and security analysis institutions.” (Miyashita, K. and Russell, D. W. 1994, p.50)
In 1981, 84 per cent of the firms listed on the Tokyo stock exchange could be associated with a financial keiretsu, of which 76 per cent were affiliated with the six largest financial keiretsu (Berglöf, E. and Perotti, E. 1994). Consequently, for a firm such as Experian, the barriers to enter Japan are very high and there may be very little demand for such a firm. I do not believe that a firm with affiliations with financial keiretsu would turn to the new entrant.
6. Conclusion
Having used a variety of sources for this report, I believe that I have sufficient evidence to form an unbiased opinion.
If entered correctly, the Japanese market could prove particularly rewarding with considerable benefits. However, when deciding on whether to enter Japan or not, the social and cultural factors are very important to consider. It is true that the Japanese business environment is losing its traditional values, for example, with the reduction of lifetime employment, however, the demographics of Japan show an aging population.
Also, the keiretsu do form a heavy guarded barrier to enter Japan and consequently, I believe that investors should investigate this further and possibly communicate with them. A recommended solution could be the possibility of a partnership or merger with an existing member of the keiretsu. For example, Experian could merge with a bureau within the Federation of Credit Bureaus of Japan.
Note: Information regarding specific keiretsu can be limiting and biased, and therefore I decided not to consider it. Also, to support my conclusion further, I could have used more recent sources.
Appendix
Appendix 1
Hofstede’s dimensions of culture:
Individualism versus collectivism – This refers to the extent to which people express themselves and use their initiative or to those who seek group identity and rely on trust. Hofstede found in his study that the USA and UK cultures to be the most individualistic, whilst areas such as Latin America to be collective.
Large versus small power distance – This refers to the perceptive measure of power and degree of inequality within a society. Hofstede’s study found small power distance cultures to include Israel and Denmark, whereas cultures such as Slovakia and Malaysia accept wider power relations.
Strong versus weak uncertainty avoidance – This refers to the lack of control and level of tolerance for uncertainty. Members of strong uncertainty avoidance cultures, such as Japan and Latin America prefer rules and structure.
Masculinity versus femininity – This refers to the division of labour between sexes and their respective status. For example, feminine societies do not value competitiveness and are less assertive than their counterparts. Hofstede concluded that Sweden was the most feminine, whilst Slovakia was the most masculine (having replaced Japan).
Appendix 2
Trompenaars’ dimensions of culture:
Achievement versus ascription – This refers to cultures where authority is achieved on merit, such as UK and USA, compared to those where it is ascribed by education or class, for example, Argentina and Egypt.
Individualism versus collectivism – This builds on Hofstede and refers to the dominance of individual rights compared to collective. The most collective countries were India and Japan, while the UK, USA and Canada were the most individualist.
Neutral versus emotional – This relates to the extent of emotions in the workplace. Also, it refers to the basis of good decision making and whether emotional and subjective factors should play a part. Countries found to be the most emotional include France and Italy, while the least include Germany and China.
Specific versus diffuse – This refers to the depth of relationships between members. For example, do relationships within the workforce extend outside work? Australia is an example of a country where specific relationships exist, while in contrast, China and India poses diffused relationships.
Universalism versus particularism – This refers to the extent to which rules and regulations are applied to various situations. China and Russia are the most particularist countries, whereby rules may be applied differently in certain situations. In contrast, USA and Canada are universalist and therefore apply rules uniformly.
Attitudes towards time – This refers to sequential events versus synchronic events. Some cultures such as Latin American and Arabic are able to perform multi-tasks more efficiently than others, for example Swedes. On the other hand, they tend to plan specific timetables and are more punctual.
Attitudes towards the environment – This refers to the emphasis on peoples’ relationships with nature and the environment by a specific culture.
Appendix 3
Table 2.1 Japanese trade barriers and their likely change for foreign firms
Source: Czinkota, M.R. and Kotabe, M 1998, p.13.
References
Anon. (2007). Business in Japan: Still work to be done. The Economist, 385(8557), pp.9-13.
Anon. (2008a). Sayonara, salaryman. The Economist, 386(8561), p.60-62.
Anon. (2008b). Why Japan keeps failing. The Economist, 386(8568), p.30-32.
Berglöf, E. and Perotti, E. (1994). The governance structure of the Japanese financial keiretsu. Journal of Financial Economics, 36(2), pp.259-284.
Czinkota, M. R. (1998). Global Neighbors: Poor Relations. In: Czinkota, M. R. and Kotabe, M., eds. Trends in International Business Critical Perspectives. Malden: Blackwell, Ch.3.
Czinkota, M. R. and Kotabe, M. (1998). America’s New World Trade Order. In: Czinkota, M. R. and Kotabe, M., eds. Trends in International Business Critical Perspectives. Malden: Blackwell, Ch.2.
Dawes, B., ed. (1995). International Business A European perspective. Cheltenham: Stanley Thomas.
Javidan, M. and House, R. J. (2001). Cultural Acumen for the Global Manager: Lessons from Project GLOBE. Organizational Dynamics, 29(4), pp.289-305.
Leadbeater, C. (1991). US survey sheds light on Japan’s barriers. Financial Times, 21 November 1991, p.6.
Miyashita, K. and Russell, D. W. (1994). Keiretsu Inside the Hidden Japanese Conglomerates. New York: McGraw-Hill.
Rugman, A. and Collinson, S. (2006). International Business. 4th ed. Harlow: FT Prentice Hall.
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