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A turning point for Japan Inc.

Japanese companies have reached a point where they need to thoroughly review their fundamental business practices.

In Japan, competition among companies in the market is extremely fierce. The market for consumer electronics products exemplifies this situation. In the United States and Europe, competition in the same market is less intense because the number of competing companies in the same price category or product niche is limited. In Japan, on the other hand, a large number of world-class consumer electronics companies are competing with one another in each price category or product niche. The competition in this kind of market tends to be price-oriented because the only way to differentiate one product from other similar products is through price.

Therefore, reducing costs by mass production is one of the key steps to succeeding in the market. In general, Japanese companies are forced to reduce the prices of their products by squeezing profit margins. Then, to secure their overall profits, Japanese companies are required to sell their products in large volume. Japanese companies, therefore, concentrate on gaining a large market share.

In short, fierce competition in the Japanese market has given rise to a unique price-oriented approach by Japanese companies which is clearly not employed by European and American companies. A Japanese company first sets a price that aims to gain market share and then it tries to cut costs and profits according to the price.

As long as such a competitive practice by Japanese companies is limited to the Japanese market, there would not be much of a problem. However, when Japanese companies are globally competitive in industries such as consumer electronics and automobiles, it means that they are competing in overseas markets. This inevitably implies the export of the Japanese form of competition. To European and American companies that are forced to confront these unfamiliar Japanese practices in their home markets, Japanese corporate behavior seems like an invasion or a strangulation. This is where the problem lies.

Japanese companies should be aware that European and American tolerance of Japanese practices is reaching its limits. Furthermore, Japanese business practices based on mass production and mass consumption will soon be tested by global concerns over limited natural resources and energy and environmental pollution. At this critical juncture, Japanese companies should realize that they will no longer be allowed to continue their single-minded pursuit of economic efficiency and success in the market.

Of course, I am proud of the many merits of the Japanese business environment. Japanese companies recognize that manufacturing should be the foundation of a healthy economy and that engineers and all related members of the manufacturing sector work very hard to create better products at lower prices for people around the world. However, I suspect that Japanese companies have reached a point where they need to thoroughly review their fundamental business practices.

Points for Consideration

I believe that Japanese industry should consider the following points:

* Shouldn't Japanese companies allow employees more holidays and fewer work hours so they can enjoy their lives more? Would it be possible to move toward the American average of working hours, if not those of Germany or France?

* Are the salaries offered by Japanese companies enough to provide employees with a good "quality of life?" Is the remuneration system of Japanese companies treating individuals fairly according to the level of their contributions?

* Wouldn't it be advisable for Japanese companies to increase the payout ratio to a level comparable with that of European and American companies?

* Are Japanese companies treating their vendors fairly in terms of conditions such as purchase price and delivery time?

* Are Japanese companies and their individual members actively contributing to their local communities as concerned citizens? Are they sharing the problems of the community as their own?

* Are Japanese companies giving sufficient consideration to issues of environmental protection and resource conservation? Should they do more to recognize that the environment, natural resources, and energy are common assets of all human beings?

Besides the decline in natural resources and the destruction of the environment, the world faces a number of tough challenges. How can we settle the current political, economic, and social turmoil in Eastern Europe and the former Soviet territories? How can we narrow the North-South gap in economic development? These are issues of serious importance.

Improvement of the ever-worsening economic environments of the developed nations is still another issue that needs to be tackled immediately. Japan is deeply integrated into the so-called borderless economy, and these issues of a global nature will certainly have a great impact on Japan as well.

I feel that Japanese companies have concentrated too much on competition and efficiency at the expense of the points I listed above. In order to bring about change, Japanese companies should first change their mind-set with regard to the appropriate margins on each product. In turn, this might lead to significantly changed pricing methods. Japanese companies would dispel the doubts of the Europeans and Americans, and in the end, Japan would be recognized as a true partner in coping with global will be able to enhance their lifestyles.

The Courage to Change

We should be aware of these points. But in reality, a company will hesitate to effect even a minor reform because it wants to remain competitive in the market. To change this mind-set is difficult.

In the current corporate environment in Japan, it is believed that any company that moves toward change cannot remain in the fiercely competitive market, and thus it is not wise to take such risk. This kind of defensive attitude is a problem. It takes courage to be the first to change.

Japanese corporate management created the lifetime employment system in the postwar period, and based upon this, it also created fate-sharing management practices. This is one of the most innovative aspects of Japanese corporate history. If we business-people of Japan commit ourselves to this innovative spirit of our predecessors, we might be able to make another innovation or breakthrough in corporate management, rather than simply responding to outside pressures. In addition, all company stakeholders, such as employees, shareholders, vendors, and people in the local communities, should join in the efforts to bring about change.

Akio Morita is Chairman of the Board and co-founder of Sony Corp. This article is adapted from "A Turning Point for Japanese Managers," an essay published in International Economic Insights, Vol. III, No. 3 by the Institute for International Economics in Washington, D.C. The essay had been a translation of Mr. Morita's original article, which appeared in the February 1992 issue of Bungei Shunju in Japan.
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Title Annotation:Accessing the Japanese Market; competition among Japanese companies
Author:Morita, Akio
Publication:Directors & Boards
Date:Sep 22, 1992
Previous Article:Japanese management: a study in stagnation.
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