The economic performances of Japan and the United States have contrasted sharply over the past two decades, with Japan’s boom in the 1980s and the strong U.S. recovery in the 1990s exposing differences in management styles and the changing nature of models of success.
“In the 1980s, Japan emerged as the strongest economy in the world. The U.S. experienced stagnant growth beginning in the 1970s and throughout the 1980s,” recalled professor Donald L. Stevens, managing director of the Institute for International Business at the University of Colorado at Denver.
That, however, changed over the last decade.
“The burst of the real estate bubble signaled reversals for the Japanese economy and a decade of slow growth and recession,” he said. “The U.S. economy began to grow, fueled by downsizing and re-engineering in the 1980s, studying what was going wrong in the 1980s and trying to put some of those changes into effect, and then in the 1990s by advances in information technology.”
In a presentation titled “Changes in Corporate Management: A U.S. and Japan Perspective,” Stevens highlighted several areas of contrast:
* In terms of management goals, Japanese firms emphasize expanding new products and operations, increasing market share, and protecting workers and avoiding layoffs in times of decline. U.S. companies emphasize returns on investment and increases in shareholders’ value, and are prepared to downsize and lay off workers.
* Japanese firms take a “wait-and-see” attitude and resist change in response to turmoil. U.S. companies also resist change, “But they did change, and used downsizing and restructuring to improve performance and to position themselves for changes for the next competitive environment,” Stevens said.
* Japanese have low risk tolerance, and failure is not accepted, he said. Americans, meanwhile, have increased their willingness over the past 10 years to take risks. “In the U.S., failure is often seen as a learning process. No one wants to fail, but people are willing to fail and start again, and start again in order to have the chance to succeed, and that attitude has really boosted the e-commerce revolution and the information-technology revolution,” he said.
* Japanese companies rely on a main-bank relationship for capital, the Finance Ministry controls banking, and postal savings — the world’s largest individual savings pool — are controlled by the Posts and Telecommunications Ministry with little or no return for investors. The U.S. has experienced the “democratization” of capital markets. It has the world’s easiest access to capital, with stock market ownership 90 percent in the hands of individuals, as compared with 30 percent in Japan.
* In Japan, large pension funds are seriously underfunded and assets are invested in fixed-income investments with low or no returns. In the U.S., pension funds have grown dramatically in the last 15 years and the return on such funds averaged 15 percent annually in the same period. “If I am an average worker, my retirement savings have grown very rapidly,” he said.
Stevens said he “cannot emphasize enough the role of public pension funds” over the past 10 years. When U.S. firms were performing poorly in the 1980s, pension fund directors began to exercise their voting rights as shareholders to pressure companies to ensure better returns on investments.
With huge membership and a long-term outlook, these pension funds could afford to diversify their investments into new areas, creating an “explosion of opportunity” and providing capital to startup companies and so-called dot-com firms, he said.
* Information-technology advances have not yet found their way into many Japanese companies, Stevens observed. “It’s interesting to see how rapidly Japanese consumers — including teenage girls — have used new technology” such as DoCoMo cellular phones, he said. But technology is moving into businesses at a much slower pace and, therefore, having little impact on the way they operate, he observed.
Having made these comparisons, Stevens emphasized that he does not believe Japanese firms should follow the management styles of their U.S. counterparts simply because they are successful today.
As some panelists noted, business managers in both countries are dictated by the circumstances of the times and adapt to survive global competition.
“One misunderstanding (in Japan) is that Americans are trying to tell Japan what to do,” he noted. “Because of some unusually fortunate circumstances, the 1990s have been very fortunate for the United States . . . (But) the success of Japan will be in a Japanese style.”
Hiroshi Ito, general manager of Toyota Motor Corp.’s international public affairs department, also echoed the need for context in evaluating differences in the two nations’ management styles.
He told the symposium that many aspects of “Japanese-style management” much trumpeted in the early 1980s were exaggerated.
Typically highlighted were lifetime employment, seniority-based promotions, nonspecific career paths, implicit control mechanisms, and collective decision-making and responsibility.
While these did exist, Ito said, “I do not believe Japanese firms were doing anything special nor possessed superior management knowhow at that time.
“The differences in the management style of Japanese and U.S. companies merely reflected the gap in the economic circumstances of the two countries or business strategies of each firm.”
Toyota’s recent listing on the New York Stock Exchange will oblige the firm to respond to its shareholders in the U.S. and review its management methods, Ito said. “Business practices that were all right previously may have to be terminated should they be deemed inappropriate in light of our global operations.”
Nachum Sicherman, an associate professor of the Graduate School of Business at Columbia University, also touched on the danger of stereotypes and exaggerations.
“Take the example of lifetime employment: I think it’s a myth. It’s never been true about Japan (because) even at its height, it concerned only 30 percent of the economy,” he said, adding that before World War II, labor mobility rates in Japan and the U.S. were identical.
“So it’s very difficult to say there is a difference in culture when it comes to labor mobility,” he added. “The reason why (labor mobility changed over the years) was that economic circumstances were different in these two countries.”
He also warned against believing that the grass is always greener on the other side. “The problem is that both the Japanese and Americans — when the other side is doing well — are trying to imitate what the other one is doing without being selective,” he said. “I think now that it will be a mistake to take everything as is and adopt it now that the U.S. is doing so well.”