CRISIS AND OPPORTUNITY IN A CHANGING JAPAN, by William R. Farrell, with a foreward by Walter F. Mondale. Westport/London: Quorum Books, 1999, 275 pp., $60 (cloth).

It's the Black Ships, round II. JETRO reports that foreign direct investment into Japan leaped 89.4 percent last year, topping $10 billion for the first time in history. Making those investments pay off is the next great challenge. Bill Farrell, a consultant and former executive director of the American Chamber of Commerce in Japan, offers indispensable assistance with "Crisis and Opportunity in a Changing Japan."

Parse that title, beginning with the last bit. Farrell is convinced that Japan is changing. Of course, the country has always been good at adapting to circumstances, and adopting foreign ideas as seems necessary. Under the pressure of a decade-long economic crisis and a structural transformation of the international political and economic environment, the pace of change has picked up. In a recent interview, Farrell called this "accelerated incrementalism."

The trick, he argues, is to exploit the pace of change. That brings us to the first half of his title, "crisis and opportunity."

In the interview, he explained that most foreign businesses in Japan "have no input into the system." In the United States, they work every angle in Washington and the state capitals. In Japan, however, "they throw up their arms in defeat. They make no effort to exploit opportunities in Japan."

Maybe that's because they're told they can't influence the system, that it is inscrutable and opaque. That kind of attitude "adversely impacts their ability to do business in Japan," when, in fact "they can participate more," said Farrell.

The trick is understanding "the system." Industry experts are helpful, but insight into the nexus of political, bureaucratic and business interaction is the key.

That's why Farrell starts his book with a description of Japanese cultural and social traits: outlook toward time, determinants of status, role of hierarchies and the like. He believes that there are distinguishing features of Japanese society. The country is more group-oriented; decisions move up, not down; there is diffused rather than centralized responsibility; ethics are situational instead of being based on principles. The list will not be wholly unfamiliar to anyone who has spent a few months in Japan. And it seems to be pretty accurate: Generalizations aren't spun out of whole cloth.

After laying out the cultural framework for understanding Japan, Farrell turns to the political system and the famed "iron triangle." Here Farrell tries to tell the tangled tale of the last decade. (His telling is a little more tangled than it might have to be: For reasons of continuity and flow, the chronology is broken up. It fits the organization of the book, but it's a bit tough for those unfamiliar with the players. A list of events in the back is a welcome aid.)

Farrell provides a key insight: The Japanese genuinely believe in "wa" (harmony) and they will do most anything to project an image of calm to outsiders. But wa is more goal than reality. Beneath a placid surface swirl treacherous currents. Those are the waters that a foreign business must explore to succeed, for the countervailing pressures offer newcomers a chance to find allies and break into the domestic market. Look for politicians eager to serve constituents. For example, a foreign importer can find sympathy from a Japanese company (and its political patron) that uses its product, since lowering import barriers will cut intermediate costs.

This process Farrell calls "naigai-dai." The word is a combination of "gaiatsu" (outside pressure) and "naiatsu" (internal or domestic pressure) that yields a new dynamic ("dai").

To make it work, knowledge of Japan is critical. In the interview, Farrell said, "You don't need kimono or need to speak the language. What you need is a Japan expert who has sensitivity to what can be done."

Familiarity with the news isn't enough. Most of us know the headline makers, but memory is also required. Former Chief Cabinet Secretaries Seiroku Kajiyama and Hiromu Nonaka are no longer in that high-visibility post, but they have retained much of their power and influence. (After all, how did they get there?)

An understanding of the system is also vital. In one example, Farrell explains how reform is changing political decision-making in unanticipated ways.

During the finance-reform debate, the Prime Minister's Office was forced to step out front because of the need to coordinate policy with the government's coalition allies. Although the LDP Policy Affairs Research Council traditionally leads on such matters, it was elbowed aside because the prime minister and the chief Cabinet secretary (at that time Nonaka) knew that PARC proposals would reflect LDP needs, and not necessarily those of the coalition partners.

That move diminished the influence of bureaucrats. They traditionally briefed PARC officials and working groups. Nudging PARC aside meant that their views got slighted. According to Farrell, that is why the Ministry of Finance's role was minimized in 1998.

That level of understanding requires expertise. A cursory thumbing through the newspapers each day won't provide the information and analysis a business needs.

Chalmers Johnson once said that to really understand Japanese politics, you have to study biography. Farrell would agree. Given the importance of personal relations, knowing who studied with whom, who is superior to whom in the hierarchy is critically important. That too obliges companies to find specialists.

Farrell's final theme is the need to scale down expectations. Japan is changing, but Japan is always changing. Farrell identifies the following key tensions: "The call for initiative and entrepreneurship implies a sense of disorder and disruption; the rise of individualism is viewed as disharmonious; innovation and new ideas bring with them all kinds of risk; the incorporation and integration of outside ideas will be time-consuming and inefficient."

Each makes it clear that Japan has recognized that it must change. At the same time, however, core values are under attack and that means change will be slow. The pace may be picking up, but Japan will always move at its own speed. That is likely to be too slow for many foreigners. Take a deep breath as the frustrations mount. Don't let them blind you to the opportunities in Japan.