International Business: Japan

Introduction

As Robert Fitzgerald (1994) says in the introduction of his collection of studies into East Asian studies, the GDP growth of nations within this region over the past half a century “has been seen as a phenomenon of unprecedented… proportions.” In the early decades following World War ll, Japan was probably the most significant example of this phenomenon, although in the past quarter of a century it has lost ground to other Asian countries. Many blame the recent changes of Japanese fortunes on the effects of globalization. The purpose of this paper is to assess the validity of this argument.

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To achieve this objective, we will first conduct a brief overview of the political, economic, and cultural structure of the country, together with the changing international business environment. Japanese Political and Economic structure As many observers have noted, the political and economic structure within Japan is markedly different from that of many other developed nations. Whereas in countries such as the US and UK there is a clear distinction between governments and commerce, Japan has developed on the basis of a high level of government involvement and cooperation between state and commerce, to the extent that it has led to “institutionalized public-private cooperation in the process of economic policy formulation and implementation” (Nester 1992, p.119).

In essence, the industrial development and economic growth that was witnessed in Japan during the beginning of the latter half of the last century were led by the political machine, which created powerful economic bureaucracies that, linked with private enterprise, heavily involved themselves in market activities (Leftwich 1995, p.420). This close relationship was, and still is, based upon the fact that both groups perceived this approach as service their common interests and objectives. Therefore, joint ventures between the two have been seen as “both practival and necessary” (Fitzgerald 1994, p.13). As will be seen later, the resultant successes of Japanese Trade during that period reveal how beneficial this approach was at the time. One of the reason that this close political/commercial relationship worked so well in Japan,, in contrast to other developed countries where there is more of a gap betweeen the ethos of the two sides, is perhaps due to the cultural influences. Historically, the Japanese are a race welded together by three main cultural strands. The first of these is a belief in an identifiable “Japanese Spirit.” The second strand of thinking is that they are culturally unique , and these two are interrelated within their thought processes (Fuller and Beck 2005, p.39). This leads to a group mentality in every aspect of their lives. For example, the reason that Japanese corporations have experienced much lower icidences of industiral unrest than their western counterparts is the group culture, which perceives that everyone will benefit if they work for the same common interest.This culture spilled over into International trade, where Japan in the past has seen it as a situaltion of them against the rest. As Fuller and Beck (2005, p.139) observe, many corporate leaders put the success of Japanese business down “to a robust culture, part of which is believing they are different” (Fuller and Beck 2005, p.139). However in recent decades, the Japanese model has become more subservient to the influences of the international community.

International Trade

The structure and shape of Japanese International business has changed significantly, particularly since 1980. The country’s old alliances that were used to fuel its phenomenal economic growth between the 1950’s and 1980’s are now being reduced in favour of the more dynamic performing emerging economies. This is clearly evidence by its international trade statistics, both in terms of exports (see figure 1) and imports (see figure 2).

Figure 1 Top ten export destinations 1980 -2006

Figure 2 Top ten importing nations 1980 – 2006

If one looks at exports firstly, as can be seen from the graph in figure 1, between 1980 and 2000 Japan relied heavily upon the western nation markets, particularly the US, for the sale of its goods and services. However, since the turn of the century this position has changed dramatically. Whilst Japan’s trade with the west has remained fairly static during the first six years of this decade, its reliance upon Asian markets, such as China, has risen significantly. For example, whilst trade with the US has little more than double during the 26 years, trade with China increased nearly tenfold over the same period, with the majority of this growth occurring since 2000, A similar result, although more pronounced, can be found in the case of imports. In this case China has displaced the US to become Japan’s highest country for imports (figure 3).  

Figure 3 Top ten importers 2006

Another interesting comparison to be drawn from these statistics is the change in the balance of trade (see figure 4). As can be seen from this table, Japan’s trade with the US and Germany has moved from one of interdependence to more of a supplier based relationship, whereas with the Asian countries of China is has moved in the opposite direction[1].

Figure 4 Balance of trade An analysis of the different between the types of products also reveals where Japan is globally dominant.

As can be seen from the following analysis of Exports and Imports (figures 5 and 6), The Japanese expertise and dominant position globally still remains in the areas of manufactured goods, machinery and transport, including computers and automobiles (Porter 1998, p.2). However, equally apparent is fact that the Chinese and Asian markets beginning to take precedence over the US and other western nations in this respect. The only variation to this development is in the area of automobile exports, which can be explained by the poorer living standards of their citizens.

Figure 5 Exports by type 2006

Figure 6 Imports by type 2006

Much of this change of direction in Japan’s international business structure can be put down to the political, economic and cultural influences explained earlier. For example, the Japanese government takes a protectionist stance in respect of its economic welfare (Nester 1990, p.167-170 and 1991, p.29) and, faced with the exceptional growth rates in China, it would be natural for Japan to move quickly to protect its main industrial expertise and the industries related to this area by seeking to seek to develop its relationship with it close neighbours, in this case being China. In these aspects and others the International ethos of Japan is very much aligned to the extended version of Porters diamond on national competitiveness (Johnson et al 2007, p.73-75 and Porter 1998, p.72). For example, the political and commercial strategy is very much focused on the need to react to rivalry and changes in demand. Similarly, Japan’s international business is quick to react to adverse conditions in any country that it trades with. To further cement its relationship with neighbouring Asian countries, Japan has sought to cement more formal economic relationships with other Asian nations through its membership of organisations such as ASEAN, which seeks to look after Asia’s global trading interests. This move is reminiscent of similar action taken by Japan in the past in an attempt to forge closer links with the US and Europe.

The impact of Globalisation

Another factor that has seriously affected Japan over the past quarter of a century is that of globalisation. During the period from 1980 to the mid 1990’s Japan was the dominant economic force in Asia and thus, to a major extent, was the sole beneficiary of the needs of the West to secure more economical and innovative products. However, as economic growth and living standards in Japan continued, so their international trade position became less competitive. At the same time, other emerging countries in the region, such as China and India, were becoming more aware of the benefits of globalisation and began to internationalise their financial and economic markets. This provided Japan’s former trading partners, predominately the US and Europe, with alternative locations and resources, at a more economical cost. Furthermore, it also opened up significant consumer markets, which these nations were quick to recognise and seek to take advantage of. For Japan, the result of this further globalisation of countries within the Asian region was to lead to a significant fall in the rate of Growth of their GDP. As can be seen from the graph in figure 7, in the past decade this rate has halved from the high of 2000 to below the rate being achieved in 1980.

Figure 7 Japan’s GDP growth rate 1980 – 2005

This fall in Japan’s GDP provides another reason for their seeking improved trade with the rest of Asia. Furthermore, Japan’s International trade position over the next decade is also beset with difficulties. With China’s economy growing at of around 10% per annum, and it set to become the world’s most powerful economy within the next three decades, with India close behind, Japan is facing a duality of economic issues. The first it that it needs to find a way to remain competitive in the face of such significant competition and the second is the need to find a strategy upon which to take advantage of the Chinese market for its own purposes. Unlike the inroads that Japan made into the US and European markets, where the economies operate on the basis of a free market with little political interference, with China Japan is facing a competitor who has a similar political, economic and cultural structure to its own. Therefore, the approach used to penetrate the western markets is unlikely to work in this China.

References

Johnson, Gerry., Scholes, Kevan and Whittington, Richard (2007). Exploring Corporate Strategy. FT Prentice Hall. Harlow, UK. Fitzgerald, Robert (ed) (1994). The Competitive Advantage of Far Eastern Business. Frank Cass. Ilford, UK. Porter, Michael E (1998). Competitive Advantage of Nations. Free Press. New York. US. Fuller, Mark and Beck, John C (2005). Japan’s Business Renaissance: How the World’s Greatest Economy Revives, Renewed and Reinvented Itself. McGraw-Hill. New York. US. Japanese Statistical Yearbook (2006). Foreign Trade, Balance of Payments and International Cooperation. Available: https://www.stat.go.jp/english/data/nenkan/1431-15.htm Nester, W (1990). Japan’s Growing Power over East Asia and the World Economy. MacMillan London, UK. Nester, W (1991). Japanese Industrial Targeting. MacMillan. London, UK. Leftwich, A. (1995). “Bringing Politics Back: Towards a Model of the Developmental State,” Journal of Development Studies, 31: 3, pp. 400-27. 1


Footnotes

[1] The anomaly in figure 4 is the position with Saudi Arabia, where the global energy crisis has forced up natural resource prices.

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