Japan Death of a Salesman

1
Japan Death of a Salesman?

• Strategy Management in the Asian Corporation
• Week 5

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
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
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 (gt450cc)
  did so with
• Higher volumes
• Technically superior products
• Cheaper prices
• Undercutting where necessary

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
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

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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

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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

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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.

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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

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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

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Honda todayGlocalization

• 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.
• RD remains based in Japan

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In short

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

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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

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Revenue maximization

• Major strategic driver is Revenue maximization
• From 1960 1990 increased 170 times
• Very RD centred (RD 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
• ATT bidding incident (optical fibre network)
  1981
• IBM intellectual property rights case 1982
• Fairchild Semi-conductors takeover veto 1987

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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 RD
• Regional development in AsiaPac (eg OEM
  agreements with Acer)

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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

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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

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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)

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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

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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 (BW)
• Televisions (Colour)
• VCRs
• Semiconductors

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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

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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 RD
  activities
• Luck
• Company leaders saw potential and addressed it
• Judgement
• What conclusions for strategy?
• Largely mobilising resources available and
• Capitalising on good fortune

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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

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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)

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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

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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
• RD 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)

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Keiretsu in 21st 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