Japan’s Competitiveness in the Global Economy and Opportunities for Japan- Related Research

1. Japan’s Competitiveness in the Global Economy and Opportunities for Japan- Related Research James R. Lincoln Mitsubishi Chair in International Business & Finance Walter A. Haas School of BusinessUniversity of California, Berkeley

2. My Japan-related interests --Human resource management and employment systems --Organizational design and management practice --Business groups (keiretsu) and corporate governance --Strategic alliance

3. Topics • Why am I here? • It’s not the weather • International business focus • Inter-university consortium • My topic: Japan’s competitiveness • Japan’s liabilities and strengths • How it’s changed • Opportunities for Japan-related business • Opportunities for Japan-related research

4. Before the earthquake Japan was getting back on track • 4% GDP growth in 2010, unemployment at 5% • Following 6% drop in 09 & 1.5% drop in 08 • But Japanese financials untouched by 08 meltdown • Strong performance in late 2010 by export industries (mostly autos and electronics) • Toyota quality problems a distraction • But shake-up good for Toyota

5. This follows 20 years of weak growth • Averaged .5% GDP growth since 1990 • 18% of the global economy in 1994. Now ~9%. • Shrinking and aging of population a factor • Since early 90’s growth of GDP/working age population has surpassed U. S. • GDP p. c. growth equal to U. S. last 10 yrs • GDP may understate Japan’s strengths • “Market value of final goods and services produced within a country in a given period”

6. Old Japan Inc. model (~1950-1988) • Corporate strategy: growth, quality, cust. service • Lifetime commitment HRM model: • High skill, stability, discipline, teamwork, flexibility • Highest manufacturing performance • JIT and keiretsu supply chains • Strange but effective (?) corporate governance • Large insider boards • Monitoring and risk-sharing by banks & keiretsu • Ministry “industrial policy” guidance • Nontariff barriers to imports & foreign investment Fell apart in the “bubble” era (88-92) & aftermath

7. Performance-enhancing adjustments to Japan’s economy since the mid-90’s • Cost-saving corporate restructurings • Improved strategic focus by large firms • Fading of legacy networks (main bank, keiretsu) • Decline of lifetime commitment HRM model • Corporate governance & accounting reform • But retreat from U. S. model after 2001 • Better universities • And less rigid primary and secondary ed (good?)

8. Japan mostly made the right changes • Kept good parts of old system • Long term employment for regular workers • Training, discipline, flexibility • Networking capabilities • Strong corporate cultures • Changes in the right places • Greater performance focus (less seniority) • Greater strategic focus • Capacity reductions • Move up value chain • Efficiency enhancing restructurings • Both firm and group • Greater financial transparency • Corporate governance reforms

9. Japan’s ongoing strengths • Well-trained, disciplined workforce • Strong work ethic and teamwork • HRM model for blue collar that travels well • Strong & cohesive management teams • Long-term orientation • Lack of investor pressure • High R&D investment • Strong manufacturing/supply chain mgt skills • Better universities

10. Japan’s ongoing weaknesses • Uncompetitive in many industries • Software, pc’s, smart phones • Chemicals and pharmaceuticals • Services • Complacency– people too comfortable • Forget #1 or even #2; OK to be # 3, 4, whatever… • Insufficient entrepreneurship • Lack of venture capital • Excessive risk aversion?

11. More liabilities • Weak political leadership • Which is no longer offset by strong ministries • Weak CEO’s & slow corp decision-making • Insufficient M&A (still coddling “zombies”?) • Lack of entrepreneurship • Labor market (including ILM) rigidities • Underutilization of women, immigrants • Few mid-career job opportunities • Problems integrating foreign white-collar employees • Still wedded to “closed innovation” model • Aging and shrinking of population • High government debt (200% of GDP)

12. What will be the economic impact of the quake/tsunami? • $300B estimated reconstruction cost • To be deficit-financed • Repatriation of yen (and shedding of US debt?) • Loss of GDP growth 1.5 - 2% • Impact on global supply chains- significant short term, longer term hard to say • Impact on psychology? • New seriousness - drive to rebuild & contribute • Or “gaman” – fatalistic resignation, muddle through

13. Should US firms be looking at Japan– for markets, partners, etc. • Already are, at least indirectly, for sourcing • Probably not in terms of markets • Affluent but tight-fisted & shrinking consumer base • Continuing consumer resistance • Still concerns about US quality & service • Japanese tastes – iphone example • Deflation erodes profitability • Maybe • For acquisitions (tough) • Alliances (better). Bad reputation outdated. Patience still required!

14. Topics for research • How do Japanese companies differ from other countries (US, EU, Korea) and are they better or worse? • Employee commitment, etc. • Teamwork and rotations • Training and mentoring • Interfirm alliances and networking • Manufacturing and supply chain • Innovation: (is ‘open’ really better than closed’?) • Corporate culture and socialization • Strategic value: knowledge kept tacit and inside • Corporate governance (incl. family firms)

15. Japan-related research opportunities • Positives • Japanese scholars want foreign collaboration • More trained in Western styles/standards • Funding by Japanese funding agencies • Relative ease of access to Japanese firms • Vast data-gathering by government agencies • Negatives : • Language barrier • Gaps in research styles/standards persist • Lack of interest by funders, journals, audiences