Japanese Management (1) Corporate Strategy

JAPAN Japan is Asia’s most developed and 2nd largest economy. . “Despite its impact on the world, Japan remains somewhat of an enigma to many.” Japan is Asia’s most developed and 2nd largest economy. A densely populated country of 128 million people in an area about the size of Germany (82 million people) and somewhat smaller than California (36 million people) Japan was first among the Asian nations to industrialize Japan’s modern economic development began in the second half of the 19th century, almost one century ahead of the Asian ‘Tiger’ states Knowledge transfer was selective and adaptive, so Japan did not become a clone of the West but evolved its own unique ways of doing things Despite slow growth for most years since 1990, it still accounts for about 30 percent of nominal economic output in Asia-Pacific (including China) Japanese managerial innovations have had a major impact on business worldwide

Evolution of Japanese Corporate Strategy Cost Leadership Global Segments Caterpillar McKinsey Honda Canon Integration Killing Two Birds with One Stone Nestlé SAP Multidomestic Localization

Ways to Enforce Standardization while Meeting Different Needs of Customers Core Component / Template Standardization Seiko Watches Black & Decker Hand Tools McKinsey & Co. Product Design Families Toyota Lexus, Camry, Corolla Gap, Old Navy, and Banana Republic Marriott, Courtyard by Marriott, Fairfield by Marriott, etc. Universal Product with Different Positioning Honda Accord McDonald’s Hamburgers

Planned selling price less If cost is too high, return to design phase U.S. JAPAN Product Development Style Market Research Market Research Product characteristics Product characteristics Product Design Planned selling price less desired profit Engineering TARGET COST Sourcing Costs Design Engineering Sourcing COST Target costs force marketers, designers, and engineers to struggle and negotiate tradeoffs If cost is too high, return to design phase Manufacturing Manufacturing Periodic cost reduction Continuous cost reduction

Where Can A Firm Reduce Cost? Where Can A Firm Add Value? Sources of Competitive Advantage U.S. Perspective Where Can A Firm Reduce Cost? V a l u e C h a i n R&D Manufac. Marketing Where Can A Firm Add Value? Japanese Perspective

Perceived Value-to-Cost Ratio of Competitive Advantage Typical U.S. Corporate View R&D Manufac. Marketing Typical Japanese Corporate View R&D Manufacturing Marketing US Solution: Low Fixed Cost Strategy (Reduce Fixed Cost by Outsourcing Manufacturing) JPN Solution: High Value-Added (Low Variable Cost) Strategy (Invest in Manufacturing to Add Value by Lowering Variable Cost)

Break-Even Point Analysis – U.S. Perspective – Cost, Sales Sales VC + FC . VC + FC’ . FC FC’ BE’ BE Units Sold

Benefits of Outsourcing (Financial Perspective) Lower Break-Even Point  Less Susceptible to Recession Lower Fixed Investment  Higher ROI

Break-Even Point Analysis – Japanese Perspective – Cost, Sales Sales VC + FC . . VC’ + FC’ FC’ FC BE BE’ Units Sold

Contrasting Case in Point Apple (USA) vs. Sony (Japan) Low-Tech? High-Tech? Apple (USA) vs. Sony (Japan)

Top 30 Patent Holders in the U.S. (2015) Source:

Top 30 Patent Holders in the U.S. (2010) Source:

Top Patent Holder Ranking in the U.S. Sony vs. Apple: Top Patent Holder Ranking in the U.S. (2000 - 2015) 2000 2003 2005 2008 2010 2013 2015 Apple 187th 218th 184th 106th 55th 15th 12th Sony 6th 11th 10th 8th 4th Apple’s NPD iPod (2001) iPhone (2007) iPad (2010) iWatch (2015) Sony’s NPD PS2 (2000) PS3 (2006) PS4 (2013) Source:　Intellectual Property Owners Association, www.ipo.org.www.ipo.org

Relationship between Technology and Commercial Success? Despite their technological strengths, why are Japanese firms (e.g., Sony) not doing well commercially, compared to U.S. firms (e.g., Apple)?

Three Fundamental Sources of Competitive Advantage Legal Protection: The extent to which a firm can keep its technology/know-how from being imitated or learned by competitors (Patent, Trademark, Copyright) Dominant Design: Setting an international and/or regional standard Mass Marketing and Distribution Capabilities: Ability to mass-produce and mass-market products/services

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