LAUSANNE, Switzerland — The 21st century has not gotten off to a particularly brilliant start. Greed, corruption and dishonesty are pervasive. Scandals are rocking the world of business and politics in America and Europe. The chances of the Bush/Cheney administration becoming paralyzed by investigations into skulduggery arising from the two’s past business practices in the oil industry are quite high. Europe, France in particular, is wallowing in murky dealings. Even such an erstwhile icon as Percy Barnevik, former chairman of Sweden’s ABB, has fallen into disgrace.
Yet, as The Economist of July 13 pointed out: “Nothing in America or Europe matches the rot in the state of Japan.”
The heavy price that Japan is paying, with respect not only to its economic stagnation but also to its internal social crisis of confidence and its external image of pathetic irrelevance, arises in good part from the excessive protectionism practiced for the past five decades. Although there may have been a rationale in the early postwar years of economic reconstruction for the protectionist blanket in which Japan was enveloped, it had disappeared probably by the 1970s, definitely by the ’80s.
The precipitous decline of Japan has vindicated the position of free-traders. Japan was the example often cited in arguments about market liberalization and protectionism. “Look at Japan,” protectionists would argue. “Its protectionism has worked marvels — why shouldn’t ours?” Japan is now a sterling example of the fact that not only does protectionism not pay, but it sooner or later eats into industrial society like a malignant cancer. This cancer is affecting business, as it has spread to virtually all institutions, including academe, think tanks, the media and civil society.
It is perhaps no more than just one of the occasional ironies that punctuate history everywhere that although it was a Japanese (Kenichi Ohmae) who coined the term “borderless world,” most Japanese businesses seem incapable of even understanding the concept. It is the advent of the “borderless world” that, in turn, explains the complementary irony that while Japanese management was the most admired in the ’80s, today it is ridiculed. True, in production management, Japanese companies in certain sectors remain extremely strong: Toyota is still a prominent global leader. But in the philosophy and practice of management, Japanese business has fallen far behind.
An example from the world of gastronomy illustrates the point. One area in which all agree — including, indeed especially, the French — that Japan is extremely strong is French cuisine, in particular “nouvelle cuisine.” There are Japanese chefs who are among the most brilliantly innovative, creative and artistic in the world. One major reason for this happy state of culinary affairs is that there are a lot of French chefs in Japan with whom their Japanese counterparts need to compete and from whom they can learn.
Obviously, forgetting to ban the entry of French chefs was an oversight on the part of the Japanese administration. Imagine if the Ministry of Finance had made the same oversight in respect to financial services, or the Ministry of Education in respect to foreign academics: Japanese banks, insurance companies and universities might now be as advanced as Japanese French cuisine!
The two drivers of the 21st-century business revolution have been the intensive and extensive integration of global markets and the radical innovations and applications of information and communication technologies. The business model everywhere has had to undergo a metamorphosis. The rate of change requires symmetric speed of response and adjustment. Thus, while visionary and dynamic leadership at the top remains highly prized, hierarchies have had to be replaced by networks, management by empowerment, consensus by dynamic teams, and leaders created across vertical and horizontal levels. The critical criterion for success is the ability to manage change in a competitively chaotic and unpredictable environment.
When the superexpress locomotive of the new business model came hurtling down the track, Japanese business for the most part stood paralyzed at the station, and there they remain. The immobility of Japanese business is a direct consequence of the massive protectionism, with respect to imports, inward investments, management education and personnel, practiced by Japanese industry for decades. It meant the absence of fresh, new ideas, external influences and, especially, competition.
The seniority and lifelong-employment systems compounded the problem, leading to a high level of managerial mediocrity, eschewing individual responsibility and accountability. The resistance of Japanese corporations to globalizing their management arises less from alleged cultural and linguistic differences than from the simple reason that individual Japanese managers compare so poorly to those of most other countries. Foreign multinational companies that try to use their Japanese staff as expatriates outside the Japanese market find, with few exceptions, that they are among the most inflexible and ineffective, compared not only to other Asians, but even to Europeans and Americans.
The convoy system among companies in similar product lines that, as critics now point out, forced companies to operate on the basis of the lowest possible common denominator, applies to the internal workings of Japanese companies as well. A young Spanish friend of mine obtained employment in Japan some 10 years ago, in one of the country’s leading electronics companies. One of his first tasks was to produce a report on European market characteristics, forces and trends for a particular product. Having studied at Wharton and being skillful with computers, he worked hard to produce as superlative and sophisticated a report as he could.
When he submitted it to his Japanese superior, he cast a glance at it and furiously threw it in his face. My friend (naive at the time) subsequently realized that not only were the junior employees incapable of that level of analysis and presentation, but that his superior, who was not about to be upstaged by some young foreign punk, was also! After several such incidents and in spite of having invested in learning Japanese fluently, the Spanish fellow left the company and Japan. He is now thriving as a highly successful entrepreneur in China. The Japanese electronics company is making losses and has seen its stock market value precipitously drop.
In the face of this challenge, there has been a good deal of rhetorical navel gazing in the media about whether the Japanese “management model” is doomed in face of the winning “Anglo-Saxon model.” When Japanese companies were world leaders in areas such as lean management, “kaizen” and quality control, foreign companies were challenged to learn and adapt these superior techniques, not because they were Japanese, but because they were global best practice. There is really no such thing as a homogenous “national” management model. Differences between companies in any given society are greater than similarities. And the main winners in today’s global competitive environment are companies that transform themselves into learning organizations and generate leadership among their knowledge workers in global markets. The multinational firm, therefore, is increasingly called upon to become more and more genuinely multinational.
The remedy for Japanese business lies not only in rapidly dismantling all the protectionist barriers, but also in undertaking all forms of globalization. Japanese companies would stand to benefit immensely from a substantial infusion of foreign managerial leadership talent, not necessarily because they might manage better but because they would shake up the current moribund management structures, thus providing a more effective means for seeing individual Japanese global business leaders emerge than under the present inward-looking parochial system. Japan lags very far behind all member countries of the Organization of Economic Cooperation and Development in the level of inward investment. It should be dramatically increased, including, indeed especially, by massive foreign acquisitions of Japanese companies. Also globalized should be all professional services, including law practices and academe. This strong breath of fresh air from the outside would no doubt do a lot to stem the rot.
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