Dilemma of Competitive Edge and Localization Faced by Japanese Companies in China: Its Reality and t

1
Dilemma of Competitive Edge and Localization
Faced by Japanese Companies in China Its Reality
and the Approach to Escape

• Prof. Hiroshi Itagaki
• Musashi University
• Workshop at University of Leeds
• 27Th Jan. 2007

2
Outline

• What is the core problem?
• Core competence of some Japanese manufacturing
  sectors
• Difficulties faced by Japanese affiliated
  companies abroad
• Attempt and challenge by Japanese affiliated
  companies to escape the dilimma

3
What is the core problem?

• Difficulties of Chinese managerial environment
• 1.Mobility of workforces in young generations
• average length of service 1.5 years for under
  thirties, around 2 years for thirties in Shanghai

4

• 2.Nevertheless, necessary to retain talented
  employees accompany with increasing significance
  of RD and strategic activities
• 3.Japanese affiliates is expected to face more
  serious difficulties than their Western
  counterparts.
• Why?

5
The manners of work

• Reason
• 1. The manners of work
• The manners of work are defined as the extent of
  demarcation, style of information sharing and the
  way of problem solving

6

• US model to standardize job categories and
  clarify decision-making authority based on
  defined job description
• Japanese model to allocate tasks flexibly to
  employees without standardization of job
  categories

7

• US model is more suitable to societies with high
  turnover ratio like China.
• US model is easier to understand for employees of
  host countries.

8
Human resource management

• 2. Human resource management at affiliates abroad
• US model to select superior employees and
  promote them early to higher or top positions
  based on standardization of jobs and authority.
  (localization of managers)
• Japanese model Expatriate-intensive management
  lag of localization of managers (Bartlett
  Yoshihara 1992, Kopp 1999)

9

• Why expatriate-intensive management?
• 1.Late comer MNE
• 2.A mirror image of regular employees and
  temporary workers differentiation at home (Kopp
  1999)
• 3.Valuable places for surplus Japanese managerial
  workforce (Pucik 1999)
• These are not fundamental explanations

10

• Then, why do JMNEs not behave like US MNEs?
• The manners of work sustain the core competence
  of Japanese manufacturing sectors.
• Its transfer is difficult or takes long time
• The Japanese expatriates who embody the manners
  of work are required to maintain the
  competitiveness of affiliates abroad.

11
Core competence of some Japanese manufacturing
sectors

• Representative products that show international
  competitiveness
• Some electronics durable goods including digital
  cameras, passenger cars, parts and component and
  some production equipment
• What elements make these products competitive?

12
Competitive strength of Japanese passenger car
makers

• 1. RD capability to achieve total optimum
• Passenger cars require optimal combination and
  fine-tuned adjustment of many parts and materials
  from the design stage. (Fujimoto 2003)
• J auto makers fulfill it in the shorter period.
  (Clark Fujimoto 1991, Fujimoto 2003)
• Essential abilities are coordination and
  cooperation between in-house sections as well as
  between procurers and supplies.

13

• 2. Manufacturing capability to achieve three
  targets of wide production variety, high quality
  and high efficiency simultaneously at high level
• J car makers surpass US makers in achieving the
  three targets. (Liker et. al. 1999)
• Essential elements are multifunctional skills,
  incremental Kaizen, and coordination and
  cooperation between in-house sections and
  procurers and suppliers.

14
Competitive strength of Parts and material
manufacturers

• Essential factors are deep extraction of
  fundamental product and production technologies
  accumulated within and between companies.
• Technologies are built and refined through a long
  process of trial and error.
• Technologies require close information sharing
  between RD and mfg. divisions.
• Therefore, these products cannot be copied
  readily.

15
Source of competitiveness

• Source of competitiveness lies in problem solving
  capabilities based on long term accumulation of
  knowledge and combination between jobs, divisions
  and companies.
• The combination is characterized by horizontal
  information exchange (Aoki 1988).
• The middle managers play important role in the
  combination (Nonaka 1988).

16
Japanese style manners of work sustains the
combination

• Weak demarcation is the fundamental
  characteristic of the manners of work in which
  tasks are allocated to employees flexibly.
• It enable the formation of multi-functional
  skills through job rotation.
• Multifunctional skills are base of combination
  between jobs, divisions and companies.

17
Human resources management

• The payment and promotion system, or in-house
  qualification system has supported the manners of
  work.
• It grades employees by age, length of service and
  ability.
• The grades determine employees basic payment.
• The grades approximately corresponds to
  managerial position.

18

• The system is suitable for the manners of work,
  because it is not job-orientation.
• It should be noted that the system contains the
  aspect of ability rating.
• The elements of ability rating encourage
  competition and cooperation among employees.

19

• Of course, it facilitates long-term service of
  employees.
• It brings in slow promotion.
• The slow promotion, coupled with ability rating,
  facilitates competition and cooperation among
  employees.
• The slow promotion is suitable for manufacturing
  industry.

20
Difficulties faced by Japanese affiliates abroad

• JMNEs have transplanted methods to achieve good
  performance such as JIT, TQC and TPM into the
  affiliates abroad.
• These methods are visible and smoothly
  transferred.
• On the contrary, the manners of work, which
  sustain the methods, are difficult to be
  transferred or at least it takes time.

21

• to maintain the competitiveness, JMNEs resolve
  the problem by sending Japanese expatriates who
  embody the manners of work.
• This is the fundamental reasons for the lags of
  localization of mangers.
• There is also strong possibility that
  standardization of jobs and adoption of fast
  track promotion decrease the competitiveness.
• This is also the dilemma faced by JMNEs.

22
Situation in China

• The situation in China seems to be worse than in
  other host countries, not only because of
  short-term orientation of Chinese young people,
  but also behaviors of Japanese affiliates
  themselves.
• The pressure of rapid expansion of Chinese
  business compels Japanese affiliates to achieve
  immediate result. It intensifies
  expatriate-intensive management.

23
Fundamental reason of the dilemma

• To maintain the competitiveness, JMNEs have
  resolved by expatriate-intensive management.
• However, the resolution causes a vicious circle
  of expatriate-intensive management and lag of
  localization.
• How can JMNEs escape this trap?

24
Attempts and challenges to escape the dilemma

• Introduction of the cases in which Japanese
  affiliates can retain talented employees
• Presupposition The difference of salary between
  Japanese affiliates and Western MNEs does not lie
  in the amount itself but the ways of payment.

25

• Case 1 A regional headquarter of leading
  electronics company located in Beijing
• Road map of promotion
• To make salary tables by job category which
  reflect the market price
• To prepare the road map in which employees can
  realize the abilities and experiences required
  for some specific managerial positions

26

• Case 2 A joint venture of leading automotive
  lighting system located in Shanghai
• Opportunity to acquire advanced technology
• The company frequently send RD engineers to
  Japan to get the latest technologies.
• To quit the company means for the engineers to
  have only well-worn knowledge
• The average salary is not so high, nevertheless
  turnover ratio is extremely low, 0.5 a year.

27

• Case 3 Major Electronics component factory
  located in Beijing
• Academic opportunity
• With the cooperation of famous university in
  Beijing, the company has its own evening
  university and MBA program.
• This is attractive opportunities for younger
  people who have capacity but cannot get higher
  educational background.

28
Implications

• 1. Japanese affiliates need to attract and
  recruit brains who take the long view and prefer
  performing capabilities steadily to getting
  immediate big money.
• 2. Japanese affiliates need to show clearly and
  concretely that working at the companies is
  beneficial to employees career building.

29
Challenge to Japanese affiliates

• Next challenge to Japanese affiliates is to find
  and foster key persons more consciously and
  deliberately than before.
• Key person is defined as a manager or an employee
  who is acquainted with the strategy, organization
  and manners of work of the Japanese company,
  exercises the leadership by translating them
  into local language and motivates his/her
  colleagues and subordinates.

30

• The best way to be acquainted with the strategy,
  organization and the manners of work of the
  Japanese company is
• To fulfill important tasks frequently with
  experienced Japanese employees
• To work at the headquarter or other business
  units in Japan at the important stages of the
  career development

31
Conclusion

• It is not an easy task for Japanese affiliates
  abroad to localize their managers.
• Hasty localization possibly causes problems (in
  the case of US auto plants).
• Japanese affiliates can only achieve this goal
  through long process of steady efforts to retain
  talented and appropriate employees and to foster
  key persons among them.
• Japanese system often requires time. There is no
  royal road.