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DefinitionsJapanese economy is one of the biggest in the

worldThe 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, 98.5 % Japanese

Tokyo: 36.6 millionOsaka (+ Kobe):

11.3 millionMedian age: 44.8

yearsLiteracy rate: 99 %Internet usage:

78%3

EconomyJapan is world’s 5th

biggest economy GDP per capita: $ 34 300Inflation: 0.4%Unemployment: 4.8%Current account to GDP:

3.6% Holds 13.7% of global

financial assetsPublic debt to GDP:

208%

(Source: CIA Factbook 2011)4

FDI inflows to GDP (%)

(Source: www.tradingeconomics.com) 5

Transnationality IndexTNI for host countries is

based on the average of: FDI inflows FDI stock to GDP Foreign affiliates’ value

added to GDP Foreign affiliates’

employmentJapan has the lowest scoreJapanese business

environment is very hardly accessible by foreigners

6(Source: Sloman & Jones, 2011)

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 visasEconomic – costly to establish new businessCultural – unwillingness of suppliers and employees to work with foreigners, customers prefer local products

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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)

Hofstede’s dimensions

PDI – is moderate, hierarchy is important in terms of status, but managers and employees have a close relationship

IDV – collectivist society, group decision-makingMAS – fierce competition between groups/companiesUAI – complex structures, planning, slow decision-makingLTO – companies follow long-term goals, investment for the future

9(Source: http://geert-hofstede.com/japan.html)

Business environmentJapanese rapid economic development is based on a unique form of capitalism: strong government – government officials consult the biggest corporation (amakudari)distinctive cultural practices applied to business – loyalty (chu) and responsibility (giri) for the company highly competitive environment – market share vs. profittechnological 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 employeesExcellent manufacturer – supplier linksLower production costs – better techniques & technologyHigh automation of production – use of roboticsVery heavy R&D spendingExtreme focus on customer satisfactionDense distribution network

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The keiretsu ( 系列 ; Eng. subsidiary)Japanese business sector is dominated by huge

conglomerates named keiretsuThese giant entities are comprised by numerous

corporations that possess cross-ownership in each otherThere 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 billion260 000 employees (200 branches) in 80 countries29 companies hold 38% of mutual sharesMulti-layered distribution & retail network

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Characteristics of the keiretsuAbeggler 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 growthManpower – 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 1990sThe 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 environmentGrowth of stock market financing, decline of

cross-shareholdingCross-border M&A increased, hence inward

FDIKeiretsu 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’ keiretsuThe traditional Japanese way of doing business has been altered:Cross ownership declinedSuppliers are seldom guaranteed orders, they need to compete on pricesImports of production inputs increasedOutsourcing takes place Exclusive agreements with sales representatives declinedLifetime employment decreased

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BibliographyLecture 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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