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The chrysanthemum revealed: probing the Japanese market.

Sector by sector, foreign players are unfolding the Japanese market. Strategies that account for cultural differences are one secret to success. But help is also on the way from Tokyo in the form of a package of investment incentives and credits.

It's clear why Chief Executive chose the chrysanthemum as a metaphor for this month's roundtable. The colorful flower is the quasi-official symbol of Japanese art and culture. Its attractive petals are complex, layered, and tightly wrapped--much like the Japanese economy. Recent turmoil has erased most of the speculative gains chalked up by Japan during the 1980s. Nonetheless, the flower also represents the blooming of a $3.39 trillion market that rivals Germany's as a model of postwar success.

That success, however, has fueled a resolve among countries and companies worldwide to gain greater access to the giant Japanese market--much of which, although not protected formally, has remained elusive to gaijin. Japan has long argued that trade imbalances are largely determined by the macroeconomic structure of nations, not by differences in market access. It also has criticized foreign companies for failing to customize their products and services to meet the needs of Japanese consumers. Nonetheless, criticism of Japan has accelerated. "Japan-bashing" is discernible today in Western business, advertising, and legislation.

Thus, a fresh, more flexible response by Keidanren to the market-access problem: kyosei. Loosely defined, the expression means economic symbiosis, or "living together." On the international level, notes the 1991 annual report of diversified semiconductor component manufacturer Kyocera, the concept underscores the compelling need for the "harmonious coexistence" of entities in an increasingly global marketplace. On the domestic level, the theme trumpets a striving toward consumer satisfaction. Perhaps the most tangible representation of kyosei is a package of reforms--designed by the Ministry of International Trade and Industry and recently passed by the Diet--to promote imports and investments into Japan, and to increase local purchases abroad. Described by roundtable participant Yuji Tanahashi, a MITI vice minister, the plan establishes maquiladora-like promotion zones, modifies the Customs Law, and provides debt guarantees and other investment subsidies. Tokyo is also aiming to make near-inscrutable legislation and regulation more accessible and intelligible, Tanahashi says. These days, in a dramatic shift in tone, "transparency" and "fairness" are ministry buzzwords.

Of course, the driving force behind kyosei isn't philanthropic--despite the guileful, portentious language used to describe it by Japanese companies and government officials. Pounded by economic conditions at home, the Japanese have been driven to seek closer links with their fellow global citizens. The speculative real estate bubble has burst, and a plunge in the Tokyo Stock Market--once a cornucopia of cheap capital--has wiped out $2.6 trillion in value. According to some estimates, Japan's once mighty banks are sagging under the weight of up to $300 billion in bad loans. During the six months ended in September, corporate pre-tax profits plunged 36 percent, and even giant Matsushita--the world's largest manufacturer of consumer electronics and an anchor of the Japanese economy--is cutting back on production and working hours. Prime Minister Kiichi Miyazawa has responded with an $87 billion economic stimulus package.

Some Japan watchers argue that consumers will escape relatively unscathed, because few are exposed directly to the crippled stock market. But if the banking sector's troubles escalate into a full-blown credit crunch, that situation could change quickly. In any case, the U.S. and other global players will be monitoring Japan's vital signs closely: A sluggish economy would doubtless leave Tokyo in no mood to slash its considerable global trade surplus. In 1991, Japan's bilateral surplus with the U.S. totaled $44 billion. In the first nine months of 1992, the surplus amounted to $33.96 billion. Flashpoints remain, particularly in such high-technology sectors as semiconductors, cellular telephones, super computers, and wireless communications.

Meanwhile, roundtable participants voiced concern about the role U.S. President Bill Clinton will play in the trade battles. Under the most optimistic scenario, Clinton will take a measured, diplomatic approach to widening market access--as did former President George Bush. Under another, darker possibility, however, if Japan fails to move far enough or fast enough, trade hawks such as Sen. Richard Gephardt, D-Mo., could gain Clinton's ear, prompting the newly minted chief executive to launch a protectionist strike. (Clintonauts are said to be keen on using 301 and Super 301.)

What does this mean for American and other foreign companies seeking to penetrate the Japanese market? At least in the near term, most ventures in Japan will remain costly, slow-moving, and hamstrung by obstacles--but to those who succeed, well worth the effort. One bright sign for outsiders is that the economic doldrums are stretching Japan's resources thin, opening opportunities and gaps. Prospective hot spots include those in which Japan has relatively little expertise, including securities trading. Others note increasing activity in the pharmaceutical industry, underdeveloped by global standards. Amid tough times, Toys "R" Us has enjoyed success by discounting its merchandise American-style, while Columbus, GA-based insurance broker Aflac has cornered the market on a specialty product--cancer insurance. To boot, the foreign share of the Japanese semiconductor market has reached 16 percent, says Joe Winder, a roundtable participant and minister for economic affairs with the U.S. Embassy in Tokyo, up from 14.6 percent in last year's first quarter.

"The hurdles to succeeding in Japan are high, but not insurmountable," notes Winder. "Companies that expend time, effort, and money to develop a market in Japan can be successful."


Yuji Tanahashi (Ministry of International Trade and Industry): Over the last few years there has been much discussion about the trade imbalance between Japan and the U.S. I would like to look at the current state of affairs and offer an overview of MITI's plans to encourage foreign companies to increase their business activities in Japan and also to promote imports.

The global trade deficit of the U.S. has been slashed from $102 billion in 1990 to $65 billion last year. However, in 1992, when the figures are in, the U.S. trade deficit will likely exceed that amount.

Although Japanese companies are making an effort to invest locally in the U.S. and have reduced exports--especially in the case of the automotive industry--we continue to register a trade surplus. That statistic has not changed.

To address the balance of trade problem, Japan's Ministry of International Trade and Industry has worked to increase the transparency of the Japanese industrial structure and to engage in discussions with the private business sector.

The private sector is undertaking a project called "Business Initiative for Global Partnership." This initiative rests on several pillars: increasing sourcing by Japanese companies established in the U.S. and abroad, and encouraging cooperation between Japanese and U.S. firms in other markets.

More than 100 major Japanese companies and 22 trade associations are now working to achieve those goals. By January 1991, 23 firms had devised plans to increase their manufactured imports by $10 billion. In addition, cooperation between Japanese and American firms has progressed.

The Japanese government has also taken an active role in trade relations. MITI recently formulated a strategy to offer incentives to promote imports and investments into Japan, increase local purchases abroad, and further cooperative working relationships with foreign firms. The Diet has already passed a law to implement the necessary objectives. To accomplish these objectives, MITI plans to:

* Create Foreign Access Zones: To provide access for imports, the government will establish foreign access zones around an airport, harbor, or its vicinity. MITI intends to create 10 or more FAZs over the next five years.

* Revise the Customs Law: Comprehensive Hozei Areas will be established in the FAZs. A Comprehensive Hozei Area is a type of free trade zone. The revision to the Customs Law will provide for the establishment of showrooms and other facilities in the Comprehensive Hozei Area and will clear through customs products that can be sold to Japanese wholesalers and retailers. Previously, only individual facilities were eligible for Hozei Area status. The new system will confer status on an entire district encompassing various facilities established by the third sector companies forming the core of the FAZ. Third sector companies are funded by private and public equity investment.

* Establish the Facilitation Fund for Industrial Structural Adjustment: This fund will set aside 1.8 billion yen for financial investment in third sector companies' establishment of import-related facilities and software development. The fund will also provide loan guarantees to the third sector companies to finance their establishment of import-related facilities and their development of necessary software, and to businesses financing their manufactured imports.

* Subsidize investment through the Private Participation Promotional Law and other financial measures: The government will provide 5 percent of construction costs for third sector companies' facilities, offer a 13 percent accelerated depreciation for the facilities, and exempt foreign companies from the special land-holding tax.

The Japan Development Bank, the Hokkaido-Tohoku Development Finance Public Corporation, the Small Business Finance Corporation, and the Export-Import Bank of Japan will offer low-interest loans. The Japan Development Bank will provide loans to cover 40 percent of the funds importers of manufactured goods need to establish facilities used to inspect, process, collect, and sell manufactured imports. The interest rate for the loan will be cut to 4.85 percent. The Export-Import Bank of Japan will provide loans to cover 70 percent of funds to import manufactured goods. The interest rate for the loan will be cut to 4.67 percent.

* Defray initial investment costs: The carry-over period for losses incurred from establishing a new business has been extended from five years to seven years. Accelerated depreciation of assets has been set at 20 percent over five years.

* Provide loan guarantees: In cases where foreign companies want to build their own handling facilities, the Industrial Structural Improvement Fund will offer loan guarantees to foreign businesses financing the establishment of trade-related facilities such as showrooms, warehouses, and other distribution facilities.

* Increase access to investment-related information: The Japan External Trade Organization will reinforce its efforts to provide information to foreign businesses on the Japanese market and distribution.

* Assist in employee recruitment activities: A company will be formed to provide employment-related information and staff training for the employees and would-be employees of foreign businesses in Japan. JETRO advisers who specialize in employment will also provide guidance.

David Drabkin (O'Melveny & Myers): Many people say the real reason behind America's growing trade deficit is that U.S. companies don't try hard enough in Japan, that they don't make enough of an investment or an effort to succeed in this market. Is that true?

Tanahashi: Success stories are never as widely published as failures. For non-Japanese people, the language and cultural differences may be obstacles to succeeding in Japan. Some executives may feel that it is difficult to familiarize themselves with Japanese ways of doing business. Others may believe the misconception that the Japanese market is closed, so they refuse to enter it.

However, lately, we have seen an increasing number of success stories--companies such as Motorola and Texas Instruments that have established profitable joint ventures in Japan.


Joseph A.B. Winder (Economic Affairs, U.S. Embassy): We've heard about Japan's new trade strategies, now I'd like to talk about America's course of action.

U.S./Japan manufacturing trade has grown substantially in recent years. U.S. exports to Japan have doubled in the past five years. During this period, our exports to Japan grew 10 times more rapidly than Japanese exports to the U.S.

The hurdles to succeeding in Japan are high, but not insurmountable. Companies that expend time, effort, and money to develop a market in Japan can succeed.

However, some worrisome trends have evolved over the last decade. Since 1980, Japanese net savings and net investment as a percentage of GNP have stayed between 18 percent and 19 percent. In the U.S., net savings fell from 6 percent to under 3 percent. In that time, U.S. net investment as percentage of GNP dropped from 6 percent to under 4 percent. So the Japanese are out-saving and out-investing us by more than 3-to-1.

Despite the enormous increase in U.S. exports to Japan over the past five years, despite the growing number of successful U.S. companies operating in Japan, and despite the growing number of alliances between American and Japanese companies, U.S./Japan economic relations are still characterized by frictions resulting from the large trade imbalance and from the continuing problems American exporters and investors face in gaining access to the Japanese market.

To attack these problems, the U.S. government has formulated a three-pronged approach encompassing macro-economic policy coordination, sectoral negotiations, and structural talks.

Macroeconomic policy has led to a strengthening of the yen against the dollar in recent years and enhanced U.S. competitiveness for our exports.

Our aim was to stimulate domestic demand to reduce the trade imbalance. Since the Plaza and Louvre Accords in the mid-1980s, Japan has agreed to let domestic demand grow faster than total demand, therefore reducing net exports. Previously, Japanese exports had grown faster than imports, and domestic demand had grown slower than total demand.

However, in the early 1990s, the Japanese economy has gone soft. Thus, Japan has reverted to export-fueled growth. But we say, "Wait a minute. That's the wrong direction." The Japanese reply: "We'll see what we can do."

Earlier this year, Japan did attempt to pump up its economy, but this mainly involved the front-loading of public works expenditures. When the Nikkei plunged below 14,000 in August, the government finally stepped in with a 10.7 trillion yen ($89 billion) fiscal stimulus package that shored up the stock market.

Unfortunately, the package hasn't substantially improved the macroeconomic situation, because the supplemental budget hasn't passed the Diet yet. So, on the macroeconomic front, we're a little disappointed with this year's results in terms of the Japanese economy.

On the sectoral front, we have progressed in several principal areas: telecommunications equipment and services, medical equipment and pharmaceuticals, electronics, and forest products.

We also have had more limited success in other areas, including semiconductors. The foreign share of the Japanese semi-conductor market is now 16 percent.

Besides semiconductors, we have made some headway with the automotive industry. Former President Bush's visit to Japan last January led to increased commitments. Japanese automobile companies agreed to step up their purchases of auto parts and cars from U.S. companies.

Meanwhile, now that sectoral issues are no longer as explosive as they seemed to be in the past, we can turn our attention to a third area of concern: structural talks. With the beginning of the Structural Impediment Initiative (SII) talks, we identified five obstacles that impede the flow of imports into Japan. These are: insufficient land for import facilities, export-oriented savings practices, export-oriented investment, a complicated distribution system, and exclusionary business practices.

Negotiations on these topics have continued, with Japan committing itself to help solve the problems involved, as Mr. Tanahashi has explained.

We are pleased with the results we have achieved so far. The enforcement process to break up obstructions to free trade has been strengthened. The Japanese have begun to speed up the patent examination period, and they have agreed to stake more than 430 trillion yen ($3.6 trillion) to public infrastructure investment over the next 10 years.

In addition, Japan has modified its large-scale retail store law, enabling American companies such as Toys "R" Us to expand into the Japanese market. It has introduced a new system to enhance direct foreign investment and also undertaken land and tax reforms.

We will continue to focus on these areas in the years ahead. One thing I have learned in my two and a half years in Japan is that you get up in the morning and keep slogging it out. There is no let-up; these trade issues are not going to go away. They are intractable, but by chipping away at them, we can make progress.

Usually, that is. One area in which our cooperation with Japan has been less than successful is multilateral trading. Japan has enjoyed the benefits of the multilateral trading system perhaps more than any other country, but it hasn't pulled its weight in the subsidy negotiations.

One reason: Japanese rice farmers. These farmers do not want to liberalize imports of Japanese rice. Right now in Japan, rice farmers exercise a disproportionate amount of political clout. Though the Japanese government might be interested in pursuing trade liberalization to promote manufacturing exports, in the agricultural arena, it is paralyzed by the desire to protect rice farmers.

Peter K. Nevitt (Mitsui Nevitt Capital): We seem to spend an inordinate amount of time talking about rice, which is like poking a sore subject. General MacArthur gave rice farmers political strength because they were conservative at a time Japan was vulnerable to heavily socialistic or communistic tendencies in the cities. So historically, the U.S. made the rice farmers politically strong.

Winder: Up until now, the rice issue has not been a bilateral U.S./Japan issue. We have taken the position in the Uruguay Round that agriculture is an important area for developing countries. If they don't get something they want regarding agriculture, we can't get what we want on services--intellectual property protection and market access.

We need an agricultural package that's good for everyone. Right now, we have restrictions on agriculture, the Europeans have restrictions, and the Japanese have restrictions. The GATT proposals stipulate what quotas and tariffs every country must adhere to and also allow each one some minimum access. It puts all the players on equal footing. In fact, Japanese rice farmers would enjoy substantial benefits from this package in terms of long-term high levels of protection.

The commitment to market access would be less than 10 percent. So Japanese rice farmers would not be threatened in any way. Their primary concern is the symbolism of moving from quotas--absolute prohibition--to tariffs that might come down over time.

The other potentially troublesome issue is civil air transportation. The U.S. and Japan have shared a bilateral civil aviation relationship since 1952. This relationship allows us to compete head-to-head with equal access to each other's markets. So far, U.S. airlines have come out ahead. We are more efficient and more competitive, and Japanese airlines are losing money.

But the Japanese decided they want to unilaterally reinterpret the civil aviation agreement. So, they slapped more restrictions on U.S. carriers flying to and through Japan. This will present problems.


Joseph C. Day (Freudenberg-NOK): Will the recession in Japan affect its export policies, especially in relation to automobiles?

Winder: Most government officials believe Japan will work its way out of the slow-down by the middle of the year. However, officials and businessmen characterize the coming recovery as a saucepan recovery, because it will stay down for a long time before it starts to turn up. Usually in Japan, the recovery moves in a sharp "V" or a "U," meaning a sharp upturn follows the bottom. But I think the recovery will be slow and uneven; it's not clear how quickly Japan will return to robust growth.

The automobile companies are affected as much as everybody else by the recession. Nissan is in the red this year. Other companies are facing a profit squeeze. Thus far, however, we have not seen any indication that the Japanese companies are backing away from their commitment to import increased amounts of auto parts from the U.S. in the next two or three years. In fact, what's different about government policy in this recession is MITI's continued commitment to increase imports and forestall a return export boom.

Day: President Clinton indicated in his campaign that he intends to increase taxes on foreign companies in America. How will Japanese industry react?

Winder: It will scream. On the other hand, an American company was just socked with a big tax bill here in Japan for transfer pricing. Two major American companies merged here a few years ago. As part of the merger, they charged the parent company in the U.S. a big bill for advice. The Japanese disallowed that as an expense, said it was profit shifting, and hit them with a tax bill.

The question of transfer pricing must be talked about at the government level. Most of the affiliates of the Japanese manufacturers in the U.S. maintain they are losing money. Yet until recently, their parents were making a lot of money.

Nevitt: I think Clinton's stand on this issue may be so much campaign rhetoric. Congress' General Accounting Office studied this problem a few years ago and concluded the amounts involved weren't significant.

J.P. Donlon (CE): Some argue that the end of Japan's so-called bubble economy will signal a greater emphasis on racking up profits rather than market maximization, cost reduction, and market share dominance. Do you agree with this view?

Winder: It's clear the cost of capital to Japanese companies is now much closer to the cost of capital to American and European companies than it was in 1990. At that time, all we read about was the cost of capital advantage enjoyed by Japanese companies. And that was the single most important determinant of the trade deficit. Today, most economists agree the edge has disappeared.

The question is: Will Japanese companies change from sales maximizers to profit maximizers? Of course, the cost of capital is only one determinant in their long-term strategy. Increasingly, American companies have come to Japan and said: "It's not only the cost of capital, but the patience of capital that's important."

Japanese capital remains extremely patient. But there is some increased pressure from the major stockholders for dividend payouts--and that has had an impact on the stock market. If you don't get capital gains, you don't get dividends, and the benefit of holding the stock becomes questionable.

Another debate raging through Japan is whether Japanese companies went over-board during the expansionary late 1980s and early 1990s. Now, their fixed costs are so high that there will be a drag on their performance for the next few years.

Most of us in the embassy believe Japan will emerge from this recession leaner, meaner, and stronger than ever. So I don't think we can take any comfort in the current problems Japanese companies are facing. We must take advantage of this brief breathing space to enhance our own competitiveness.

William A. Furman (The Greenbrier Cos.): What's your take on the problems plaguing the Japanese banking system?

Winder: The Japanese financial sector is embroiled in a tough situation--the toughest it has faced in the last 30 or 40 years. Companies are holding a lot of non-performing assets that they can't write down without incurring devastating tax consequences.

Now they are in the process of establishing the equivalent of our Resolutions Trust Corporation, which would buy assets or claims on assets from the banks, and hold them for a while so they could be written down over time. The Japanese government is not about to let the banking sector collapse. The Japanese Ministry of Finance has a philosophy: "Not one bank shall fail."


Hachiro Koyama (SmithKline Beecham Japan): Getting away from Japan's financial difficulties, I'd like to draw on my observations--culled from 40 years of working with foreign companies in Japan--to dispel some myths about the Japanese management system.

I have worked with Standard Vacuum Oil Company (antecedent to Mobil) as a training director, Johnson Wax, and now SmithKline Beecham Japan.

During my time at these companies, I noticed that inaccuracies in the perception of the Japanese management system persist in America and abroad. Perpetuated by American and European scholars, companies, and journalists, these misconceptions flourish because of a continual emphasis on the differences between our cultures. Somehow, we must instead stress the similarities. But if the media and businesses only emphasize the similarities, nobody will read the articles. |Laughter.~

One of the most popular myths surrounding Japan is the concept of lifetime employment. But there is no lifetime employment. Until several years ago, in Japan all people retired at the age of 55, a practice sometimes called mass dismissal, which is akin to America's retirement age of 65. Some 70 percent or more of these Japanese "retirees" want to work longer; they must find another career with reduced income.

Part of this lifetime employment myth was fueled by a no-discharge policy Japanese companies allegedly adhere to. But here's a story: About seven years ago, a top manager of a leading American company came to me for advice. The company had a Japan division, which was run successfully for eight years by a Japanese president. But when the head office was acquire by a U.S. conglomerate, a new general manager was sent to oversee all operations. The Japanese president became a division manager, a move he naturally resented. So he refused to follow the instructions of the new manager.

I was asked what the company should do. I answered, "Why don't you discharge him?" The manager said, "We can't discharge him, he's Japanese." However, there are a hundred ways to get rid of a problem executive or employee without discharging him. In Japan, we don't discharge the way employees are fired in America or other countries. But many people leave companies for many reasons: They resign; they cite personal reasons. We may not call it discharge, but the result is the same.

Meanwhile, it has also been said that Japanese employees are extraordinarily loyal to their employers. But I don't think the Japanese are more loyal than Americans. It's just that changing careers or jobs in midstream is not only difficult but means a substantial cut in income. On average, according to a recent study, a Japanese employee will earn 200 million yen during his career. But if he changes jobs at the age of 30, he will receive 155 million yen by career's end. He loses almost 50 million yen by changing jobs.

One last myth: Some say foreign investors are having a more difficult time than Japanese businessmen in the Japanese market. I don't think that's true. To be sure, ours is a fiercely competitive market. Business is difficult here for America, and for Britain--but also for Japan. According to a U.S./Japan joint study team, since 1980, 14,000 registered Japanese corporations went bankrupt a year. That figure is 12.5 percent more than American bankruptcies in America during the same period, while the number of Japanese corporations. That alone tells you how hard it is to survive in Japan even for Japanese businessmen.

Japanese companies are often characterized as unwilling to volunteer information. But should people who are successful give away their trade secrets to competitors? Someone who failed in Japan has to pass the buck to someone else. So he blames the complexity of the Japanese distribution system. I saw a headline in an English newspaper that described the situation perfectly: Winners whisper, losers scream. |Laughter.~

So many reports are published on how to succeed in Japan. If I had to select one key to success, I would choose long-term commitment. Many foreign investors and businesses fail to acknowledge and to capitalize on this main ingredient.

When I moved to Johnson Wax, I was offered a job in Japan. When Sam Johnson, a fourth-generation owner of Johnson in Racine, WI, visited Japan, I asked him to tell me the secret to Johnson's success in the international marketplace. His answer: Select the best management in your area regardless of the cost. When Johnson Wax goes into a new market, it sends an executive from the head office who knows Johnson Wax. In turn, he recruits a local manager to take over and run the business.

Nevitt: How do you go about recruiting these middle managers?

Koyama: Recruiting capable employees is a common problem among the businessmen here. Our research firm conducted a study 15 years ago that asked college juniors and seniors whether they would prefer to work for a Japanese or a foreign company.

Eighty percent said they wouldn't mind working with a foreign company if it were a good one. But there's a catch: Only a few members of the group recognized the name of an American insurance giant, Metropolitan, while 99 percent recognized the largest Japanese insurance company, Daichi Insurance. In other words, it may be hard for a foreign company to gain sufficient visibility.

Another problem: The Japanese public largely believes the misconception that foreign companies practice a fire, hire, fire policy that destroys stability.

To erase that misconception, I believe foreign companies have to formulate a long-range plan to recruit employees. I always tell businessmen: Offer a senior Japanese executive who is retired or close to retirement a top management job. He will help you recruit. Many people will join your company--not because it is a giant in America, but because of the executive. Employees trust him. They know he will protect them from radical actions taken by the head office in Europe or America.

If the executive is successful, in a few years you can move him to a higher position, such as chairman of the board, and give his job to one of the understudies he recruited and taught.

Donlon: If this executive is such a good mentor, why would he be available for hire?

Koyama: Because in any country there is only one presidential position per company. That's a significant attraction.

Where Japanese employers find potential managers: Believe it or not, labor unions form one pool of talent. Consider this: Some 16 percent of Japanese corporate directors have experience in their younger years as trade union officers of a company. In Japan, a company has one union comprised of salesmen, engineers, clerks, and factory workers. A college graduate who possesses leadership qualities joins the union and is recognized as a future leader because he is willing to stand up for his colleagues. Management watches these people. We look for those with leadership potential.

Albert Cohen (Gendis): One tremendous advantage you have in Japan is that you have company unions, not international unions. When I visited the Sony factory one time, I noticed the workers were wearing red bands around their heads. I asked the manager about them, and he said, "We're on strike." I was shocked because everyone was working as hard as ever. I told him that when employees are on strike in Canada, everyone stops working. The manager replied, "We won't do that because that would hurt the factory and productivity. We negotiate after working hours."

That would never happen in Canada. My company has 8,000 employees, and we don't have any unions. We try to approach our people on the basis that we offer them anything a union could. We utilize a spokesman and an open-door communications policy to provide opportunities for frank discussion.


Donlon: If a company isn't well-known--if it isn't a Coca-Cola or Disney--and its product isn't a consumer product, how can it penetrate the Japanese market?

Day: Western companies will not generally be successful, unless they can make a unique contribution that isn't available in the Japanese market.

The strongly nationalistic nature of Japanese industry dictates that Japanese companies will succeed first. In the absence of their ability to succeed, they will draw upon some non-Japanese technology, service, or distribution system to serve their local market. Foreign companies that wish to come to Japan for the sole purpose of servicing an existing Japanese market will fail.

Eric J. Oakes (Ahlstrom Pyropower): The Japanese market is very competitive and unforgiving in the sense that you cannot lose. You must remain competitive.

Day: In America, fair play in the market might ensure that dozens of companies can successfully serve some regional or national market. The cost of entry in a Western system is simply the cost of capital or the cost of creating the distribution system or the cost of the plant and equipment.

However, in Japan, possessing the funds, competitive technology, and desire to succeed are not enough to win. One must add significant value to the product or service he offers.

Yoshiaki Koyama (Banking Bureau, Ministry of Finance): Let me tell you a little about my organization. The Ministry of Finance oversees every financial institution, including securities and insurance companies. My bureau comprises just 320 people. In the U.S., the equivalent organization employs 10,000. And even those 10,000 public servants cannot cope with the financial difficulties in your country.

The U.S. has a complicated business system. Japan has a simple system. If you desire to penetrate our market--which is just 10 percent of the world economy--you must differentiate us from other markets. The opportunity is here, but you must build long-term trust in consumer relations with high-quality goods.

Hideaki Toda (Nippon Information and Communication): I don't think Japanese consumers discriminate between foreign products and services and domestic ones. Japanese buyers like many foreign items such as McDonald's hamburgers and Kentucky Fried Chicken.

It takes time to penetrate Japan's market. You cannot be successful in a short time. You must take the time to understand the Japanese culture.

Takeo Nishitani (IPR): That's true. I also think adapting to local tastes is important. McDonald's hamburgers do not taste the same all over the world. In Japan, they are thinner and less fatty than in America.

Here's another example: In building a Disneyland in Japan, climate was an important consideration. Japan has more rainy days than California, so the park had to be designed with more roofs and indoor attractions so business would not be lost.

Here is a rule of thumb: Look to establish the three C's: credibility, creativity, and contacts. Credibility arises from your success at home. Creativity is a must when adapting products or services to local tastes. And networking with Japanese businessmen will make the transition easier.

Nevitt: You can't say, "If my product is good enough for the U.S., it must be good enough for the world." That won't work in Japan.

Another problem is that U.S. companies don't realize or appreciate the size of the market. Japan has a population of over 125 million. These people are consumers. They have money to spend.

In 1990, Ford, GM, and Chrysler sold 24,000 cars in Japan. BMW sells about 30,000 by itself. Yet, knowing the Japanese market as I do, I think consumers here would be susceptible to Cadillacs because they are looking for a prestigious car that offers the features they want.

Mamoru Iwamoto (JETRO Import Promotion Department): I think American companies should focus on the four P's: product, preparation, presence, and patience.

The product should always be superior to that of your competitors. Preparation includes marketing research and advertising. Use advertising or agents or trading partners to establish your presence in the Japanese market. Finally, you must bide your time, and eventually you will see results.

Hiroshi Iwaba (NTT Learning Systems): My company is franchising U.S.-made systems for educating and training salespeople with large corporations. I researched the Japanese educational business market and tried to understand its structure and customs. I recommend that U.S. companies find an agent they can trust and use him to scope out the market. Later--after one or two years of shipment--the agent may no longer be needed.


Donlon: How different are the American and Japanese systems of doing business?

Day: I've been involved in the formation of six joint ventures, and I've visited Japan on 56 occasions. The most striking difference is that in America, we feel a certain responsibility and expectation for fairness--that has always influenced our businesses to freely exchange information and to participate in an open and uninhibited way.

I find a significant difference in Eastern cultures, not just Japan, but also Taiwan, Korea, and some other Asian countries. There is a different motivation involved. The Japanese drive arises from a strong nationalism and desire to succeed at any cost. The work force is committed to the success of Japan, not just to one company, but to the success of the country. Americans and Europeans, on the other hand, are motivated by personal interests and individuality.

Itsuo Murakami (Yakult Honsha): It seems to me that to American companies, export business is a marginal business when there is not enough demand in the domestic market. Therefore, these companies do not try to modify their products to fit Japanese standards. Instead, they blame the Japanese system for their failure to make a profit.

In addition, the Japanese language seems to be a big barrier to success. Today, many American businessmen are becoming fluent in Japanese. I think this can be an enormous help when setting up a business in Japan.


Donlon: Will North American/Japanese trade relations improve by the year 2000?

Furman: I think relations between our two countries will continue to improve. We have a solid basis for a strong relationship. Japan has its work ethic, its industry, its capability. America has natural resources, a great domestic market, and the will to succeed.

Murakami: In addition, systems and procedures governing every aspect of business will become more similar than different. Regulations on food, medicine, and taxes will be more closely coordinated between the two countries.

Nevitt: I believe it would be a tragedy for both Japan and the U.S. if trade relations were not on a much higher level by the year 2000. We are natural trading partners, but we have to become more reciprocal.

Day: I don't know if the gap is going to close, but both systems will become more efficient, productive, and successful. The American system has the opportunity to learn an endless number of things from the Japanese system, and it can become stronger because of that.

Together we have the opportunity to move up the ladder of prosperity at the same rate. I hope we can capitalize on that opportunity.
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Title Annotation:CE Roundtable
Publication:Chief Executive (U.S.)
Article Type:Panel Discussion
Date:Jan 1, 1993
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