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1 Japan – Death of a Salesman? Strategy & Management in the Asian Corporation Week 5.

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Presentation on theme: "1 Japan – Death of a Salesman? Strategy & Management in the Asian Corporation Week 5."— Presentation transcript:

1 1 Japan – Death of a Salesman? Strategy & Management in the Asian Corporation Week 5

2 2 Conflicting considerations Opportunity is tremendous in Alaska, William. Surprised you're not up there – Arthur Miller Japanese companies rarely have a strategy – Michael Porter Success of global corporations based on output expansion at home and favourable labour settlements (wages, hours of work) rather than sustainable competitive advantages

3 3 Porters viewpoint The dangers of Japanese-style competition are now becoming easier to recognize. In the 1980s, with rivals operating far from the productivity frontier, it seemed possible to win on both cost and quality indefinitely. (MP) This thesis is not entirely true But Japanese industrys attempt to take corrective action was essentially self-destructive leading to sangyo kudoka -reduction in domestic manufacturing base due to shifting production overseas

4 4 Honda motorcycles BCG report 1975 Reasons for decline in British motorcycle industry Loss of market share (in previous 15 years) resulted from concern with short term profitability Japanese m/c growth based on large volume production of small m/cs in home market with volume related cost savings In 1960 only 4% of production exported Challenge to small m/c production in UK led to segment retreat Concentration on large m/c production When Honda entered superbike segment (>450cc) did so with –Higher volumes –Technically superior products –Cheaper prices –Undercutting where necessary

5 5 Segment Retreat BCG data UK annual production = 14 bikes per worker Honda annual production = 159 bikes per worker Honda labour cost = 1/10 of UK Honda capital costs per bike = ¼ of UK The rate of technological learning tends to be related over time to accumulated production experience as the company develops and applies lower cost methods in the course of conducting its business. The competitor with the highest annual model volumes can benefit from methods which embody up-to-date technology and which rely on scale effects for their cost superiority Noted in Rumelt 1995 Segment Retreat

6 6 Revisionist Pascale (1984) argues the success was not premeditated Honda design team had produced a good 50cc bike for the home market Devised a vague strategy to enter the mid- range market in US While there attention was attracted by the small bike Luck & dealing with miscalculation is key to success Revisionist view

7 7 Strategic intent Prahald & Hamel argue success was product of Core competencies and Strategic intent Hondas vision was large scale & out of proportion to reality Entered market with product beyond competitors range Concentrated on this while developing new products & quality engine design Strategic intent

8 8 Honda in the US – in their own words America is the stronghold of capitalism, and the centre of the world's economy. To succeed in the U.S. is to succeed worldwide. On the other hand, if a product doesn't become a hit in America, it'll never be a hit internationally. "To take up the challenge of the American market may be the most difficult thing to do, but it's a critical step in expanding the export of our products." Takeo Fujisawa

9 9 Honda in the US – in their own words American Honda began its sales activities in September 1959, with a tiny staff of eight. The company's lead products were the Dream, Benly, and Super Cub (called the Honda 50, in the U.S.), which had just made its Japanese debut The thinking was, they simply couldn't grow without adapting their management strategies to the local community. Employees were hired locally, making for a total sales force of eight people. In truth, the locally hired people proved beneficial to Honda's effort, since they had connections with existing dealers throughout Southern California.

10 10 Honda in the US – in their own words Mailings were sent to those dealers, and …. the company ran ads in local trade papers and motorcycle magazines, hoping to entice dealers. Not surprisingly, managers from the dealerships began appearing at American Honda, hoping to test-drive the bikes. Having lost its main products for the time being, American Honda was forced to carry on by placing its remaining product, the Super Cub, in the spotlight. The Super Cub-or, the Honda 50 in the U.S.-was a performance model, featuring twice the horsepower of competing products

11 11 Did Honda have a strategy? In UK segment retreat purely felicitous Pascale is partly right Planned entry to US on basis of (some) market research Technical failure of mid range products led to (necessary) emphasis on remaining product Not entirely unplanned approach – therefore, strategic Tomorrow the world - Prahald & Hamel Again partly right Excessive intent – yes Concentration on core competencies – more intent Competencies not fully up to speed – hence research TT races etc

12 12 Honda today Glocalization What is Honda's global strategy? It's simple put cost-effective plants in areas that best meet the needs of local customers. We integrate plants into markets with a "Small Born" manufacturing strategy, starting small and then expanding as local demand increases. Five Region Strategy Decision-making responsibility regarding sales, manufacturing and research are afforded to each region. Products that best serve the region are pushed to the forefront of the development and manufacturing process. R&D remains based in Japan

13 13 In short Honda ongoing strategy Appears to be Cost reduction Technical competence But allied to Harmonisation of product to local market demands

14 14 Fujitsu and the American Dream 3 phases 1935 – 1954 positioning in telephone equipment aided by links to Ministry of Telecommunications & NTT (national telephone operating company) 1954 – 1975 expanding computer products (exporting from late 50s) Gained top domestic position 1976 – onward Becoming total information equipment vendor

15 15 Revenue maximization Major strategic driver is Revenue maximization From 1960 – 1990 increased 170 times Very R&D centred (R&D budgets always greater as percentage of sales than competitors) Based its global strategy on aggressive home competition with IBM Japan Used lessons from home market to expand on same basis globally 1980s set back –AT&T bidding incident (optical fibre network) 1981 –IBM intellectual property rights case 1982 –Fairchild Semi-conductors takeover veto 1987

16 16 Style for the 90s 1990s autonomous offshore production phase 90s strategic issues partnership & strategic alliances aim for cross-cultural management (globalisation as catalyst for change) Globalisation of R&D Regional development in AsiaPac (eg OEM agreements with Acer)

17 17 When in doubt – er, do the same Focus on semiconductor technology 8 February 2005 Electronic Devices Business Market Situation System chips are source of our products competitiveness (performance, cost, delivery) Technology advances exacerbating limitations of horizontally segmented business model Severe conditions in second half of FY 2004; FY 2005 conditions similar to FY 2004 Basic Strategy Continue QCD improvements (quality, cost, delivery) Strengthen strategy of partnering with customers Increase focus on logic business Continuance of basic strategy when under stress

18 18 Oh, Mr Porter Porter – Competitive Advantage: Creating & Sustaining Superior Performance (1985) Companies create competitive advantage by creating value –Lower prices – cost leadership –Unique benefits – differentiation –Focus – tailors products to narrow industry segment

19 19 Comparison in US Shah et al (2000) compared German, Japanese & US firms in US to determine business level strategies Conclusions Japanese companies –Rely on low cost in the long run – low cost strategy –More aware of competitors quality –Work closely with suppliers to improve quality –Emphasize intermediaries (US adversarial approach) –Use intermediaries as easier access to markets (strategic alliances)

20 20 Difficulties Found major areas of difficulty implementing strategy Lack of clear goals Lack of MIS support Lack of communication with functional areas {same problems with US & German firms, but greater extent in Japanese}

21 21 Good Luck or Fine Judgement Harvey et al (2001) consider the growth & development of Japanese Electronics Industry (1945-1995) Factors involved Increase in capital (domestic & corporate) at low rates allowing huge capital budgets to be thrown at new developments Toshiba home appliance business equipment budget ¥5.6m in 1957 ¥29.5m in 1961 Led to virtuous circle effect Ability of companies to see product opportunities & exploit them –Televisions (B&W) –Televisions (Colour) –VCRs –Semiconductors

22 22 Keys to growth Early 50s US boost to electronics industry to supply forces in Korean War (Special Procurements) At same time academics from US lectured on need for quality in products Necessity and not being seen as a rival gave Japan licensing access to vital technology Through 60s Yen pegged to US$ at level of ¥360 to $ made products more competitive in world inflation 1985 realignment of G7 currencies caused onset of endaka (rapid Yen appreciation) Effect on lost sales massive Kyocera estimated ¥900m loss in annual sales per ¥1 rise in exchange rate

23 23 Reactions Response was cost reduction by overseas production Japan had access to appropriate technology Economic circumstances were right The products were right Huge sales growth could sustain crucial R&D activities Luck Company leaders saw potential and addressed it Judgement What conclusions for strategy? Largely mobilising resources available and Capitalising on good fortune

24 24

25 25 When the bubble burst Post bubble strategies of overseas production Are they tenable? Major concern about Kudoka Bailey (2003) argues for competitive decline linked to Government strategic failure (Japanese disease) Ministry of International Trade & Industry targeted OF (outer focused) companies FX resources Low interest rates Trade & investment protection Led to excessive expansion & export oriented growth

26 26 When the bubble burst Keiretsu leadership failure Strategically self-defeating Drive for cost reduction has led to overseas production However growth has begun to improve Even if domestic effect is deindustrialisation (Bailey)

27 27 Policy change? Elder (2000) suggests that many insulative policies remain Promotion of specific industries is a continual thread in economic policy Despite a promotion of greater FDI into Japan Makino et al (2004) LDCs are said to be more uncertain than in DCs in both competitive and institutional environments Our study revealed that subsidiaries in LDCs, on average, were superior in terms of both financial performance and survival likelihood. The conventional perception that uncertainty in LDCs would be a major obstacle to successful operation of foreign subsidiaries, and thereby to achievement of satisfactory performance, is therefore doubtful. Managers should recognize that many subsidiaries in LDCs are in fact doing much better than subsidiaries in DCs

28 28 The past is not another country Although the average performance of subsidiaries was found to be higher in LDCs than in DCs, the variance of performance (both financial performance and survival likelihood) was also significantly higher in LDCs. Watanebe & Hur (2004) in a study of Japanese electrical machinery industry Posit the view that R&D in the industry is declining Need to utilize fully potential resources in innovation Link gross firm value to increase in intangible assets Suggest way forward is sustainable functionality developments (service based improvements)

29 29 Keiretsu in 21 st Century Role of the Keiretsu Kim et al (2004) suggest that strategic direction is not consensual Within Keiretsu hierarchy of power dependencies –Effects on product strategy –Profitability Suggest inadequacy of Keiretsu groupings in sustainable development

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