The Challenge for Japanese Multinationals

Transcription

1 The Challenge for Japanese Multinationals

2 The Challenge for Japanese Multinationals Strategic Issues for Global Management Hiroo Takahashi

3 Hiroo Takahashi 2013 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act First published 2013 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress.

4 Contents List of Illustrations Preface and Acknowledgments xi xiii 1 Regional Headquarters as Multinational Global Strategies The organizational background of the RHQ Trends in the establishment of Japanese company RHQs The BRI research survey The staff function of an RHQ Dual organization structure Research papers on RHQs Kansai Productivity Center Research Survey Research survey by INSEAD The responsibility and authority of an RHQ functioning as a global organization structure The CEO and staff in charge of an RHQ Management functions of an RHQ as a global organization structure The RHQ as central coordinator The future of the RHQ as a global organization structure Some strategic issues of RHQs The function of corporate headquarters The reorganization of corporate headquarters The essential qualities of corporate headquarters The quantitative and qualitative approach The centralization of corporate headquarters in the Tokyo area Case study: HOYA 34 v

5 vi Contents 2 The Issues for Corporate Governance and Its Reform The approach from a business ethics perspective Excessive performance orientation Arbitrary actions by a CEO The diminishing functions of the board of directors The corporate governance viewpoint The legal structure The reality of a Japanese corporation The background to corporate governance in the US The relationship with business ethics Decline in earnings and poor corporate management The responsibilities of the corporate managers and the function of the board of directors The rise of corporate investors A comparative analysis of corporate governance in the US and Japan Description of top management in the US Outside directors Officer and subcommittees The management committee The separation of management functions A description of top management in Japan Inside directors The nonseparation of management functions The representative director The managing director s committee The diminishing functions of the auditors Reform in corporate governance in Japan A system to encourage the practice of business ethics The issue of selecting a CEO as the top leader The essence of corporate governance An evaluation of corporate governance in Japanese companies The logic of capital and shareholder centrism 64

6 Contents vii The Japanese management culture Case study: SONY 67 3 Business Ethics for Global Business The basics of business ethics A subject for corporate strategy Business scandals Concerns about business ethics US and Japan Codes of conduct: differences between Japan and the US Interview survey Content, enforcement, significance Content Means of enforcement Significance What is illegal conduct? The concept of business ethics What are social norms? Changes in social norms Intangible assets Relation to stakeholders the evolution of the market Linkages with a global code of conduct Corporate character in the 20th and 21st centuries Emphasis on business ethics education US business schools Drucker School, the Claremont University PRME Case study: Kikkoman 97 4 A Global R&D Network The essence of research and development Foreign research and development Siting research and development in overseas countries Current foreign research and development in Japanese corporations Perspectives on international foreign research and development 108

7 viii Contents Using external resources The speed of research and development The costs of research and development Clusters Networks and interorganizational relationships Networks and the development of information and communication technology (ICT) The internationalization of business activities of corporate organization and their relationships Internationalization of R&D The development of R&D Dynamism in R&D A global R&D network How it should be viewed Closed R&D and network R&D The basis for the formation of network R&D The human aspect of global R&D networks The significance of the human network Autonomy and control Leadership Networks and the creation of knowledge Case study: Canon The International Competitiveness of the Japanese Service Industry Characteristics of the service industry MNCs in the service industry The internationalization of the Japanese trading firms Why the Japanese service industry lacks international competitiveness Particularistic management Protectionism under the government The Japanese spirit of service Entrepreneurial leadership The global vision of the Japanese service industry 144

8 Contents ix The accumulation of successful management in manufacturing Japanese service industry M&A outside Japan The international expansion of the service industries Case study: 7-Eleven Training and Qualifications for Global Leaders What are human resources? From personnel to human resources Going global Training for global leaders Human resources dispatched overseas Education for business leaders Purposive leader development Types of global business leaders What is a global business leader? General managers At the top of overseas subsidiaries country leaders Functional leaders Global leaders and chief executive officers Strategic educational development for global leaders Human resources management programs Career design OJT abroad MBA (Master of Business Administration) The problems of overseas business schools The significance of graduate schools for professionals Qualifications for global business leaders Conceptual skills: the ability to see things objectively Interactive human skills: affection for people Communication skills: language ability Case studies: educational development for global business leaders 173

9 x Contents Toyota Motor Co. Ltd Nissan Motor Co. Ltd Panasonic Matsushita Electric Industrial Co. Ltd Canon Inc SONY Corporation Appendix 175 References 180 Index 191

10 List of Illustrations Figures 1.1 Sony s global HQ Present and future functions of the RHQ List of research papers on RHQs The establishment of an RHQ The areas of RHQ control Influence ratio between RHQ and HQ in regional strategy The predicted future functions of RHQs Assessments of RHQs Location of major Japanese company HQs RHQs in HOYA s global organization The Osaka HQ of Orix Framework of corporate governance 41 a. The structure under Japanese company law 41 b. Actual structure of corporate governance in Japanese corporations The composition of the committees in a US board of directors A comparison between Japan and US top management Business ethics and CSR are encapsulated within Canon s corporate philosophy A comparison between US and Japanese business ethics Corporate character in the 20th and 21st centuries Nissan R&D as part of a global R&D network Global R&D expenses, per sales The transition to R&D globalization in Japanese firms Expected outsourcing of R&D High-tech research specialities in US, EU, Japan The development of R&D internationalization Comparison between closed R&D and network R&D Uniqlo New York 5th Avenue 133 xi

11 xii List of Illustrations 5.2 A comparison of major US and Japanese brands The seven largest trading companies performance The growth rate of labor productivity Percentage of R&D expenditure in the service industry Foreign direct investment in Japanese service industries Panasonic s global leader training center Overseas business experience or MBA degree of the CEOs in major Japanese global corporations Effective development for global business leaders The appropriate training ages for global business leaders The necessity for an MBA degree 169 Tables 6.A.1 Major Japanese MNCs by industry A.2 Foreign subsidiaries in Japanese multinationals 178

12 Preface and Acknowledgments This volume consists of six chapters, with each chapter detailing strategic issues currently facing Japanese multinational corporations (MNCs). Since the 1980s, Japanese MNCs have expanded to many other countries and regions and have developed greatly. Yet because Japanese MNCs previously conducted their business mainly within Japan, they now face numerous issues concerning how to create a global management system. These issues are investigated in this book on the basis of the relationship between the development of MNCs and their organization strategy and structure. The following topics will be addressed: first, the nature of the regional headquarters (RHQ) of Japanese MNCs; second, the characteristics of an ideal global headquarters of an MNC, including its top management structures and corporate governance; third, the relationship between corporate governance and business ethics; finally, the issues facing Japanese MNCs, which include the globalization of research and development, the international competitiveness of non-manufacturing industries, and the training of global managers. In addition, with Japanese MNCs now eyeing emerging countries, this book addresses the various challenges associated with conducting business in these regions. In Fortune magazine s listing of the top 500 multinational corporations for 2010 by country, the US ranked first with 139 companies, followed by Japan with 71 companies. There were 149 in the EU. Japanese MNCs, especially in manufacturing industries such as automobiles, electronics, and precision machinery, now operate globally. With the maturing of the domestic market, Japanese MNCs, not only in manufacturing industries but in non-manufacturing industries as well, will continue to globalize, with overseas expansion accelerating in developing countries alongside the economic development of neighboring countries such as China. I have been researching multinational companies for around 30 years, and in that time, in addition to studying the literature, I have visited multinational companies in Europe and the US, as well as the overseas hubs of Japanese MNCs. To date, I have visited over 200 xiii

13 xiv Preface and Acknowledgments multinational companies around the world. I do not provide just a theory; I conduct case studies by visiting the companies. The results of this research have already been published as a book in Japanese. There have been many English-language publications on the characteristics of Japanese MNCs and Japanese management. However, there is none like this book that addresses the stance of today s Japanese MNCs as they face various issues and try to reorganize. Japanese MNCs have expanded into China, India, other Asian countries, and the Middle East, and many researchers and businesses are anxious to see how well the characteristics of these MNCs translate to these countries and regions. Although there are many publications in Japanese relating to MNCs, I believe that this publication in English, the lingua franca of the world, is highly significant. I have given a number of presentations at the Academy of International Business (AIB), the Society of Business Ethics (SBE), and the International Conference on Multinational Corporations (sponsored by the Chinese Culture University in Taiwan). In addition, I have been invited several times to give a presentation at the annual international conference held at Southern Taiwan University of Technology. The core content of this book is based on studies and publications that have been reviewed and cited at these international conferences. Overview of the book Chapter 1: The best-known study regarding the relationship between the development and the organization of multinational companies is Managing the Multinational Enterprise (Stopford and Wells, 1972), which is based on research conducted at the Harvard Business School. It sets out what the organizational structure should be for each development phase based on the strategy of an American multinational company to expand into Europe. In particular it describes how, as business in Europe became more active and overseas subsidiaries were established, a regional headquarters was established to oversee all European operations. However, the regional headquarters became a two-layered organization somewhere between the main headquarters and the overseas subsidiaries, so in the interests of quick decision making, it had to be either downsized or dismantled altogether. With these issues in mind, Japanese MNCs have again

14 Preface and Acknowledgments xv started establishing regional headquarters in the US, Europe, and Asia. Based on case examples and questionnaire surveys, this chapter will address what exactly a multinational company headquarters is, the role of the global headquarters, and the functions of the regional headquarters. Chapter 2: The thinking of Japanese company management about corporate governance is different from that of European and American companies. In answer to the question of who owns the company, a characteristic response of Japanese management is that the company belongs to the employees, whereas in Europe and America the company belongs to the shareholders. Japanese companies have grown and developed with a sense of camaraderie and loyalty among their employees, based on long-term or lifetime employment. However, these companies now need to change in the face of their increasing globalization and competition on a global scale (so-called mega competition). Each company must first fulfil its responsibility to its shareholders and carry out a fundamental restructuring of its operations in order to do so. This is a shift to the European and American concept of corporate governance. In order to achieve this, changes are being made such as having outside directors make up the majority of the board of directors, appointing a non-japanese CEO, or implementing a corporate officer system. This chapter will address what the ideal top management system for a Japanese MNC should look like. Chapter 3: Business ethics and corporate social responsibility (CSR) have become vital issues for Japanese MNCs. Interest in business ethics among Japanese companies gained momentum after the bursting of the economic bubble in the early 1990s, when public criticism of companies as a result of numerous corporate scandals led to deteriorating business conditions. The Japan Economic Federation has also established its Code of Conduct as an operational policy for industry, and many individual companies have established and abide by their own code of conduct. Moreover, laws and regulations have been put in place to protect consumers, and there have been calls for changes such as establishing a compliance division within companies and appointing ethics officers. In addition, with increased awareness of issues such as global environmental protection and human rights, the responsibilities of companies, vital players in the market economy, are substantial. This has led to the present-day concept of CSR. This

15 xvi Preface and Acknowledgments chapter will address the current trends noted in CSR reports, whose publication is mandated annually, and the establishment of codes of conduct by Japanese MNCs. Chapter 4: Operational activities by multinational companies consist of sales and marketing overseas, production and manufacturing, and research and development (R&D). However, one core corporate strategy of multinational Japanese companies has been research and development into new technologies and products, and historically they have not attempted to conduct R&D overseas. In contrast, European and American multinational companies started conducting R&D overseas in the 1970s. It is only since 2000, after a lag of more than 20 years, that Japanese MNCs have started rapidly building a global R&D network. This chapter will examine the factors and background behind the globalization of R&D and why the world s multinational companies are trying to build a global network for R&D. In an age of mega competition, R&D must be conducted by utilizing the knowledge intrinsic to various regions and countries around the world as well as the intellect of local people. Globalization of R&D continues in cutting-edge industries such as aerospace, medicine, biotechnology, new materials, information communications, and renewable energy. Chapter 5: The international competitiveness of Japanese MNCs is in manufacturing, represented by such fields as automobiles, electronics, and precision machinery. In comparison, the international competitiveness of the service industry is weak. The background to this is that Japanese government support of the manufacturing industry has been national policy, whereas the service industry has been protected from entry by overseas competitors to allow it to grow within Japan. However, with the maturing of the domestic market, the Japanese service industry must expand overseas. The Japanese government is now providing various kinds of support to increase the international competitiveness of the service industry. Moreover, in recent years some Japanese companies have been proactively buying service businesses in not only Europe and the US but also Asia and China. This chapter looks at the strong international competitiveness of American multinational companies in the service industry. It also looks at the Japanese service industry as it undertakes the necessary reforms, and at why Japanese management is traditionally particularistic, whereas American management is universalistic.

16 Preface and Acknowledgments xvii Chapter 6: Human resources is the most important element in multinational company management. Particularly in the case of Japanese MNCs in recent years, the swift global expansion of management activities has begun to exceed the speed at which personnel can be trained or hired. In addition to the ability to communicate in English, expatriates are required to have a wide range of qualities such as professional expertise, leadership skills, the ability to adapt to the local environment, and negotiation skills. Many Japanese MNCs train employees in-house, and this chapter will introduce specific case studies. In addition, human resources management (HRM) takes into consideration the perspective of business leaders, functional leaders, and country leaders. With employee training taking such forms as on-the-job training (OJT) overseas and the acquisition of MBAs at business schools, CEOs are conducting experimental studies on what HRM methods are best for Japanese MNCs. It is clear that today overseas experience is a prerequisite for staff. Readership At American and European business schools, there is great interest in Japanese management characteristics and Japanese MNCs. This is due to the global brand strength of Japanese products such as automobiles and electronic goods, and the worldwide business activities of Japanese MNCs. There are many publications in English regarding Japanese management, but few of these explain the strategic issues that face Japanese MNCs today. Occasionally I have come across papers that treat the regional headquarters system discussed in Chapter 1 and the globalization of R&D examined in Chapter 4, but there are very few that address corporate governance, business ethics, the international competitiveness of the service industry, and the training of global leaders. In this respect, I believe this book will be of interest to researchers and businesspeople who are interested in Japanese management. Acknowledgments The successful publication of this book is the result of many scholars efforts in the fields of international management and business ethics, and of the work of institutions such as AIB and SBE (based in the US),

17 xviii Preface and Acknowledgments the Academy of Multinational Enterprises (AME, based in Japan), 1 the Japan Academy of International Business (JAIB), and the Japan Society for Business Ethics Study (JABES). 2 Most of all, I would like to thank the Chairman of Hakuoh s Board of Directors, Mr. Joji Kamioka, for his great support. It has been very productive for me to discuss many of the issues in this book with so many helpful and informed people. I am also very grateful to have been given the chance to be a visiting professor at the Lubin School of Business, Pace University, New York, while on a sabbatical from 2003 to 2004, and for being invited as a speaker at the 7th (2006) and 8th (2011) International Conferences on Multinational Enterprises hosted by the Chinese Culture University. It was also wonderful to participate in the 1st (2005) to 8th (2012) International Conferences on Knowledge-based Economy & Global Management hosted by the Southern Taiwan University of Technology. In addition, I am indebted to many top-level corporate executives, for giving interviews and for helping with the survey of major Japanese MNCs, in particular Mr. Yuzaburo Mogi (Honorary CEO and Chairman of the Board of Directors, Kikkoman Corporation). I want to express my appreciation for his comprehensive and insightful comments. For their inputs on Chapter 4, I acknowledge the insights of J. Dunning (Professor Emeritus at the University of Reading), J. Daniels (Professor at the University of Miami), S. Blank (Professor at the Lubin School of Business), and D. Vogel (Professor at the University of California, Berkeley). Professor Dunning unfortunately died in I met him first at the 7th Conference on Multinational Enterprise held by the Chinese Culture University. He made many useful comments that helped me reform my ideas. Professor Daniels commented on my presentation on The International Competitiveness of the Japanese Service Industry, which was the basis for Chapter 5 of this book. It was Professor Blank who gave me a chance to make a presentation when I was a visiting professor at the Lubin School of Business. Professor Noritake Kobayashi (Professor Emeritus at Keio University and former chairman of AME) has continued to advise me on my studies of international business since I joined AME over 20 years ago. Professor J. Miller, my Hakuoh colleague, checked my English. My greatest professional supporter has been my research assistant Ms. A. Cheng at the Institute of Business Research, Hakuoh University. As always, my indispensable supporter is my wife.

18 Preface and Acknowledgments xix Notes 1. The Workshop for the Study of Multinational Enterprises (WSME) was formed in 1960 under the leadership of Professor Itaro Irie (Kobe University), Professor Yoichi Itagaki (Hitotsubashi University), Professor Noboru Yamamoto (Keio University), and Professor Akira Yamashiro (Hitotsubashi University). A significant number of academics and businesspeople interested in the study of MNCs gathered together to discuss the new learning required and its implications for Western multinationals already in existence, as well as those that were emerging in Japan. After 30 years of judicious study, in 1990 the workshop sponsored an international conference in Tokyo, with the general theme Multinational Enterprise and 21st Century Scenarios. The conference report was titled Management A Global Perspective (edited by Noritake Kobayashi, Japan Times 1990). Then in 2009, the workshop was reconstituted, becoming the Academy of Multinational Enterprise (AME). Its 40th anniversary conference was held in November 2012, with the title Emerging Countries and Multinationals (Bunshindo 2012). I have been a board member of WSME and AME since During the 1980s a number of large Japanese and international corporations acted unethically and engaged in unlawful behavior. To address these ethical failures of the business sector, in 1991 Masakazu Mizutani organized the Group for Considering Business Ethics (GCBE), with more than 20 members, including myself. The number of members of the GCBE greatly increased, and they became active in studying business ethics and promoting our findings to the public, including business firms, so Mizutani decided to change the GCBE into an academic association. On April 1, 1993, the Japan Society for Business Ethics Study (JABES) was established. The main purposes of the society are the study of business ethics, the development of ethical organizations, and international cooperation with foreign academic and business organizations. In 1997 the society started a collaboration with the newly founded Business Ethics Research Center (BERC), which is a specialized organization of Business Ethics and Compliance Officers in Japan with more than 120 members. The society held annual research meetings and published 20 issues of The Journal of the Japan Society for Business Ethics Study. The society has also held national and international symposiums on business ethics. JABES has conducted research exchange meetings every other month since Various current topics such as corporate governance, codes of conduct, and the UN Global Compact have been discussed in the meetings, and well-known scholars and businesspeople, both foreign and Japanese, have been invited as guest speakers. I have been the president of JABES since 2009.