Topic 4 Japan and its Corporate Hegemony Supplementary Notes

1
Topic 4 Japan and its Corporate
HegemonySupplementary Notes

• Overview Contemporary Japanese History
• Corporate System
• Political Economy

2
Feudal Japan
1

• Shintoism
• The Way of the Kami (Gods/divinity)
• A combination of two Chinese words Shin, meaning
  divinity, and Tao, meaning the way or the
  path.
• Founded around 500 B.C.
• Mixture of many tribal religions, each having had
  their own Kami, or god.
• A Kami is anything that can be viewed with awe or
  reverence (natural objects or creatures).
• Purpose
• Celebration and enrichment of life.
• Sacredness of the whole universe and that man can
  be in tune with this sacredness.
• Respect for the authority of the state, the
  employer, and the family.
• Worship
• Act of purification offering is presented to the
  kami, (money or food) and a prayer or petition
  is made.

3
Feudal Japan
1

• Basic beliefs in Shinto
• Affirmation of tradition and the family
• Rites of life such as birth and marriage.
• Traditions passed down from generation to
  generation.
• Affirmation of the love of nature
• Nature is sacred.
• Contact with nature means that a person is in
  contact with the gods.
• Affirmation of physical cleanliness
• One must be clean in the presence of the spirits.
• Something that is not clean is ugly.
• Affirmation of matsuri
• A set of shrines and temples.
• Festivals honoring the kami.

4
Overview Contemporary Japanese History

• Tokugawa Era (Edo Period) (1603-1868)
• Tokugawa Ieyasu founded a dynasty of Shoguns.
• Maintained a fairly stable government based in
  Edo (now Tokyo).
• Japan was isolated from the outside.
• Christianity was banned.
• Missionaries were expelled.
• Trading with the West was limited to a few Dutch
  traders in Nagasaki.
• Internal commerce flourished with the rise of the
  urban merchant class.

5
Basic Hierarchy of Feudal Japan (Tokugawa Period)
1
Emperor
Shogun
Alternate attendance system (Edo)
Real power
Symbol
Daimyos and Samurais (7)
Mostly located in fortified towns.
Artisans and Merchants (13)
Peasants (80)
Several peasants had a sideline.
6
Overview Contemporary Japanese History

• Meiji Era (1868-1912)
• The Shogunate was overthrown.
• The Emperor was restored to power.
• Japan opened to the West.
• Reforms included the abolition of the feudal
  system and the redistribution of land.
• Expansionism and the rise of military power.
• Sino-Japanese War (1894-1895).
• Russo-Japanese War (1904-1905).
• Japan was recognized as a world power.

7
Japans First Transformation
2

• Emergence of the private sector
• Strong state / enterprise ties.
• Textile was the most important sector of the
  early industrialization
• Exports accounted for 90 of the silk industry.
• In 1887, 90 of international silk trade was
  under foreign control while this share was
  reduced to 60 in 1900.
• Cotton culture disappeared and replaced by raw
  cotton imports, wield in Japan, and re-exported.
• State intervention
• The state refused foreign capital and intervened
  to initiate the industrial revolution.
• Built infrastructures such as telegraphs and
  railways (1872).
• Heavy industries with spin-off effects.

8
Overview Contemporary Japanese History

• Taisho Era (1912-1926)
• The Taishô Democracy brought democratic ideals
  to Japan.
• Second wave of industrialization.
• Westernization and a period of cooperative
  politics with the West.
• New social freedoms.
• Movies and radio became available.
• Technological transformation of the society.
• Increased involvement of the military.

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Japans First Transformation
2

• Consequences of WWI in Pacific Asia
• Japan benefited tremendously from WWI.
• Did not participate in the conflict but benefited
  from increased demands from Europe, which boosted
  exports.
• German defeat in WWI
• Enabled Japan to seize some of German colonies in
  1919.
• Marshall, Mariana and Caroline Islands.
• Great Depression of the 1930s
• Exportation crisis.
• Foreign competition (from India).
• Boycott of Japanese goods by the Chinese
  Diaspora.
• Protectionism from industrialized countries
  (notably the US).
• Realization of the impeding conflict.

10
Overview Contemporary Japanese History

• Showa Era (1926-1989)
• The reign of Emperor Hirohito spanned World War
  II, the American Occupation, and the rapid
  postwar economic rise.
• After the war, a new Constitution included
  provisions of non-armament and equality of the
  sexes.
• The postwar period featured a general rise in
  affluence and economic power.
• Heisei Era (1989-present)
• The bursting of the Bubble Economy of the 1980s
  sobered Japanese industry.
• The government was restructured and a process of
  deregulation was initiated.
• Japan maintains its status as a world power and
  economic giant.

11
Corporate System

• Kaizen system
• Means continuous improvement.
• Work organization model.
• Work teams evolving along a production chain.
• Teams have the responsibility of specific
  elements of the production chain.
• Quality control and the maintenance of the
  facilities.
• Elimination of several intermediate tasks and
  reduction of delivery time limits.
• Integrated with just-in-time strategies.
• Increase implication of workers since they evolve
  within teams.
• Workers become members of a production chain
  that, even if still working on an assembly line,
  is more flexible.

12
Corporate System

• Principles of the Kaizen system
• Human resources are most important asset of an
  enterprise.
• Improvements of the quality of the product must
  be gradual and not the result of radical changes.
• Quantitative methods to measure improvements.
• Kaizen and production
• Reduce tasks not contributing to the added value
  of a product, such as overproduction and
  warehousing.
• Raw materials and parts arrive on the production
  chain just as they are required.
• Changes relationships that a enterprise maintains
  with its suppliers.

13
Corporate System

• Provide their products in small quantity and
  continually.
• System where fluxes of parts and information are
  continuous between the various elements.
• Able to answer more efficiently the needs of the
  market.

Workers
Assembly line
Work teams
Assembly line
14
Corporate System

• Trading Houses
• Trading Houses (Sogo Shosha) have a dominant role
  in the globalization of the Japanese economy.
• Intermediary role.
• A transactional agent of Japanese firms on the
  national and international markets.
• Marketing.
• Knowledge about international and national
  markets to help Japanese firms sell.
• Distribution.
• Offers transport, insurance and warehousing
  services.

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1
16
Corporate System

• Small and Medium-Sized Enterprises
• Importance for the Japanese economy
• Keiretsu are supported by an extensive network of
  small and medium sized enterprises (SME).
• Account for 80 of employment and 50 of
  industrial production.
• Strong sub-contracting linkages with the
  keiretsu.
• They take the fluctuations of the market.
• Several are within the kanban (just-in-time)
  supplying system.
• About 30-40 of the SME in the automotive sector
  were supplying their customers on an hourly basis.

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Japanese Supplying System
CONVENTIONAL
Industry
Shipping
Supplier
FLEXIBLE SPECIALIZATION
18
Average spending in Research and Development,
of GDP, 1985-95
2
19
Researchers per 10 000 Labor Force, 1981-99
2
20
Corporate System

• Shocks
• Several monetary and economic shocks during the
  1970s.
• The first petroleum shock (1973-74) quadrupled
  the price of petroleum (3 to 11 US per barrel).
• The second petroleum shock (1979-1980) pushed the
  price to 34 dollars.
• Japan is highly vulnerable to petroleum and
  energy prices since most of it are imported.
• Period of high inflation that crumbles the
  productivity of the economy.

21
Trade and the Financial System
3

• Origins of the financial system
• Trading enterprises in Osaka and Edo were
  established in the early 18th century and owned
  by rice merchants.
• Large companies such as Mitsui developed from
  this trading.
• The modern financial system was developed during
  the 19th century to stimulate industrial
  development.
• Financial structure
• By government design, banks were highly
  specialized.
• Each category of financial institution was
  limited to a particular market (banks for
  agriculture, for industrial development, and for
  foreign trade).
• Over time, the distinctions between the various
  types of financial firms have blurred.

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Trade and the Financial System
3

• At the turn of the century, large banks developed
  and formed the core of industrial groups
  (zaibatsu).
• Large banks signified the centralization of
  finance in Japan.
• Tended to be located in Tokyo
• Strong role the Japanese government played in
  developing the country's economy and financial
  system.
• After World War II
• Government again played a significant role in
  stimulating investment to promote industrial
  development.
• For instance, the Bank of Japan consistently
  over-lent to the major banks to increase the
  availability of funds for industry and to lower
  the cost of capital.

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Trade and the Financial System
3

• As the economy grew, so did Japanese banks and
  other financial institutions.
• By the 1980s, Japanese banks and insurance
  companies were among the largest in the world.
• There were two primary reasons
• The Japanese banking industry was extremely
  concentrated.
• The yen appreciated substantially in value
  compared to other currencies, especially the US
  dollar.
• The Banks are caught in a system where they must
  loan money to the members of their keiretsu.
• Decline of the banking system during the 1990s.
• Still the largest creditor of the world.

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Trade and the Financial System
3

• Japanese corporations on the international market
• High added value is a prominence of exports
• Difficulties to export on the international
  market.
• Favored industrial relocation processes.
• Less consequences then anticipated.
• High prices on the national market are
  subsidizing exports.
• The Japanese market is closed
• Among the lowest tariffs barriers in the world.
• Non-tariffs barriers in place and prevents
  foreign imports.
• Subject to problems with trading partners,
  notably with the United States.
• Sogo Shosha are controlling internal distribution
  networks.
• Japanese nationalism and consumer preferences.

25
Corporate System

• What Japan was not able to acquire from conquest,
  its corporate system successfully acquired.
• Dependency is a structural weakness of the
  Japanese economy.
• Raw materials.
• Energy.
• Parts.
• Investments abroad created competition.
• From Japanese subsidiaries.
• From NIEs.
• From other developed countries attracted by the
  purchasing power of the Japanese consumers.

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Corporate System
1

• Competition
• Dualist perspective.
• Free market enterprise over international market.
• Information and innovation capacity important but
  difficult to reach.
• Links with the MITI to follow the evolution of
  international markets.
• Product quality and services an important part of
  marketing.
• Very low competition of the national market
• Subsidizing exports.
• Non-tariffs barriers for foreign firms.
• Distribution networks are held by a limited
  number of keiretsu.
• Difficulty to compete abroad due to a protected
  national market.

27
Corporate System
1

• Intra-Corporate Relations and Activity Sectors
• Complex relationships trough shareholding.
• A bank is at the core.
• Stability in the management, markets and
  financing.
• On average, a keiretsu has 10 to 50 of the
  shares of the enterprises of the same group.
• This involves considerable sums.
• Variety
• Japanese conglomerates have considerably more
  varied activities than their European and
  American counterparts.
• Involved in a wide array of industrial sectors.
• Financial, transport and retailing activities.
• They are their respective customers and
  suppliers.
• They share capital, research and development,
  customers, vendors, and distributors.

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Corporate System
1

• International Trade and Production Systems
• Japanese international trade is mostly controlled
  by conglomerates.
• 60 of external trade and 40 of national
  distribution.
• Difficulties for a foreign enterprise to go on
  the Japanese market.
• Stages of production
• Most of them controlled by the keiretsu
• From investment, extraction, transformation,
  production, distribution and marketing.
• Horizontal (related sectors) and vertical
  (production chain) integration.
• Not very visible for outside customers
• Toyota (Mitsui), NEC (Sumitomo), Canon (Fuyo),
  Toshiba (Mitsui), Hitachi (Fuyo) and Nissan
  (Fuyo).

29
Evolution of the Japanese Economy, 1960-1995
3
30
Major Japanese Exports and Imports, 1999 (in
millions of US)
3
31
Political Economy

• Ministry of Finance (MOF)
• Known as Ôkurashô.
• One of the most powerful government agencies.
• Equivalent of several of the most important
  agencies in the United States
• American Treasury Department.
• Internal Revenue Service.
• Securities and Exchange Commission.
• State banking commissions.
• MOF employees
• Enjoy an elite status in Japan.
• Competition to enter the MOF is keen.
• MOF officials, like other Japanese bureaucrats,
  retire early (usually at 55).
• Proceed to work for private industry, especially
  banks and other financial services firms.

32
Political Economy

• The Bank of Japan (BOJ)
• Known as Nihon Ginkô or Nichigin, is Japan's
  central bank.
• Counterparts in the West are the Federal Reserve
  in the United States, the Bundesbank in Germany,
  and the Bank of England in the United Kingdom.
• The BOJ is not part of the government.
• The government owns a majority of shares of
  ownership.
• Torn between two conflicting goals
• Curbing inflation, and promoting growth.
• The BOJ would prefer to check inflation.
• The government would rather promote growth.

33
Political Economy

• Four primary responsibilities
• It is the sole issuer of bank notes (currency).
• It is the bank of the government itself.
• It is a lender of last resort to the commercial
  banks.
• It carries out monetary policy.

34
Political Economy

• Ministry of International Trade and Industry
  (MITI)
• Founded in 1949.
• Give Japanese industries the means to recover and
  export on the international market.
• MITI administers national strategies linked to
• International trade.
• Industrial sectors and industrial location.
• Information and high technologies.
• Environmental protection and energy policies.
• Functions
• Gathers information on foreign market and
  technologies.
• Follow trends and market changes.
• Subsidies strategic research projects.
• Identifies potential growth sectors in the
  industry and subsidies their development.

35
Political Economy

• Controls trade, quotas, tariffs and dumping.
• It has favored non-tariffs barriers preventing
  foreign enterprises to gain access to the
  Japanese market.
• Focus
• 1960s heavy industry.
• 1970s usage of new energy sources.
• 1980s Value added sectors (electronics,
  semiconductors, etc.).
• 1990s Computer science and automation.
• 2000s Robotization.
• Changing environment
• The role of the MITI is challenged.
• Conglomerates have their own RD strategies not
  wishing to share the fruits of their RD because
  of competition.
• MITI, like bureaucracies, has difficulties to
  adapt to change.

36
Mitsui Anatomy of a Japanese Conglomerate

• Context of the Mitsui conglomerate
• The 5th largest corporation in the world.
• The most important corporation in Japan.
• Oldest trading house in the world (founded in
  1585).
• Means Three Wells.
• Initially involved in the manufacturing of sake
  and cloth wholesaling in Osaka.
• Supported the Meiji restoration in 1868 and
  became the banker of the state.
• Moved its head office from Kyoto to Tokyo in
  1873.
• Mitsui Bank and Mitsui co. (Sogo Shosha)
  founded in 1876.
• In 1914, controlled 26 of the external trade of
  Japan.
• Closely linked with the Japanese territorial
  expansion.

37
Mitsui Anatomy of a Japanese Conglomerate

• Weapon constructor and administrator of occupied
  territories during the Second World War (Korea,
  Taiwan and Manchuria).
• Most important industrial corporation in the
  World in 1943.
• 2 million employees.
• Half of them in China.
• Zaibatsu was dissolved in 1945 in about 180
  enterprises.
• Took several years for the corporation to
  regroup.
• Three Pillars
• Mitsui Bank.
• Became Sakura (Cherry Tree) bank in 1992
• 6th most important bank in the world in 1995 with
  560 billion US of assets.
• Mitsui Real Estate Development Corp.
• The most important in Japan real estate owner in
  Japan.
• Builds and manages commercial buildings.
• Mitsui Co.

38
The Logistics of Mitsui Co.

• Needs
• Increase production efficiency.
• Reduce distribution costs.

• Services
• Offer and develop a logistical distribution
  system.

• Needs
• Reduce inventory costs.
• Offer better services to customers.

Mitsui
Production
Sales
Information fluxes
Distribution System
Freight fluxes
Orders
Orders

• Logistical center
• Supervisions of orders and the inventory.
• Consolidation of deliveries.

Producer
Customer
Producer
Customer
Producer
Customer
39
Structure of the Mitsui Conglomerate, 1993
Finance Insurance
Electrical Mechanical
Construction
Cement
Textiles
Toray Industries
Mitsui Construction
Onada Cement
Mitsui Trust Banking
Mitsui Engineering Shipbuilding
Sanki Engineering
Chemicals
The Core
Mitsui Mutual Life
Toshiba Corp.
Mitsui Toatsu Chemicals
Sakura Bank
Retailing
Mitsui Marine Fire
Toyota Motors
Mitsui Petrochemicals Industries
Mitsukoshi
Mitsui Co.
Transport
Paper
Denki Kagaku Kogyo
Food
Mitsui Real Estate Dev.
Oji Paper
Mitsui OSK Lines
Nippon Floor Mills
Steel
Mitsui Warehouse
Japan Steel Works
Ishikawajima Harima Industry
Mitsui Metal Processing
40
Major Conglomerates, Incomes, 1999 (billion US)
1
41
Major Banks of the World, 1990 (stock market
capitalization in billion US)
3
42
Major Banks of the World, 1997 (stock market
capitalization in billion US)
3
43
Major Banks of the World, 2001 (stock market
capitalization in billion US)
3
44
Tokaido Megalopolis
4
Kanazawa
Tokyo
Narita
Nagoya
Kyoto
Osaka
Kobe
Hamamatsu
Kansai International Airport
Airport