Business Environment - International University College, Sofia
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Transcript Business Environment - International University College, Sofia
Lecture 21 (L8/S2)
Business Environment in Japan
Milena Malinowska
1
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,
98.5 % Japanese
Tokyo: 36.6 million
Osaka (+ Kobe): 11.3
million
Median age: 44.8 years
Literacy rate: 99 %
Internet usage: 78%
3
Economy
GDP 2011 ($ trillion)
15.4
Japan is world’s 5th biggest
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11.3
4.7
4.4
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
4
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
10
Japanese business environment
is very hardly accessible by
foreigners
6
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
7
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
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
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
12
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
13
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
14
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
17
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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