PERSONAL PERSPECTIVE : Jobs: Creating Them / Keeping Them : Japan Must Play According to the Rules of its Competitors

Although Japan has a free-economic system, it seems that the price of a Japanese-made product tends to be lower than the prices of products of comparable quality manufactured by European and U.S. companies. Why?

In the United States and Europe, competition seems more organized, because the number of competing companies in a same-price category or product niche is limited. In Japan, competition among companies is extremely fierce.

The Japanese market for consumer-electronic products illustrates the point. A large number of consumer-electronics companies are competing within each price category or product niche. Competition in this kind of a market tends to become price competition, because the only way to attract consumers to a product within a similar class of products is to make a difference in price. Cost reduction by mass production is thus one major key to succeed in this market.

Accordingly, Japanese companies are forced to reduce the prices of their products by squeezing their profit margins. To secure their overall profits, they must sell their products at a large volume. Japanese companies thus concentrate their attention on grabbing a larger market share to secure outlets for their products manufactured in large volume.

In short, fierce competition in the Japanese market has given rise to a unique price-setting practice. First, the Japanese company sets a target price for its product that will meet the competition. Then it tries to assign costs and profit within that price.

As long as this competitive practice is limited to the Japanese market, there should not be much problem. But Japanese companies are globally competitive in such industries as consumer electronics and automobiles. This inevitably means the export of the Japanese practice. From the perspectives of European and U.S. companies, this practice makes Japanese corporate behavior look like an invasion or a strangulation. This is a serious issue.

The lifetime employment system, created as a consequence of the post-war liberalization of Japanese labor practices, brought tremendous reform to the Japanese management system. From this system sprang a fate-sharing consensus between management and employees: the Japanese system of equality, manifested in the minimal pay differences between management and employees, and seniority. Furthermore, management and labor joined together to pursue the common goal of catching up with and surpassing European and U.S. companies. They jointly polished technologies, increased the level of productivity and improved quality.

Japanese companies also had to acquire skills to survive the fierce competition caused by such trends as national governments adopting policies to encourage industrial growth. Consequently, they put all their resources into the enhancement of their abilities to survive competition. This inevitably meant that even when companies substantially increased their profits, they did not automatically share the increase with their shareholders, employees or other related parties. Rather, Japanese companies reinvest their profits into research and development and into equipment to further enhance their competitiveness. They also allocate a substantial portion of their profits to internal reserves to cushion them from a worsening market environment.

These practices certainly have helped Japanese companies to strengthen their competitiveness--but possibly at the expense of their employees, shareholders or local communities. Also, Japanese companies might sometimes have put too much pressure on their vendors in pursuit of competitive muscle.

The corporate management style in Japan makes it possible for Japanese companies to offer low prices for their products, which puts European and U.S. companies at a severe competitive disadvantage. But Japanese companies should be aware that European and U.S. tolerance of this state of affairs is reaching its limit. Furthermore, Japanese business practices based on mass production and mass consumption will soon be tested in terms of global concerns over limited natural resources and energy, and environmental pollution. Japanese companies should realize that they will no longer be allowed to continue their single-minded pursuit of economic efficiency and success in the market.

Japanese companies, in thoroughly reviewing their fundamental business practices, should pay more attention to the following points:

-- Isn’t it advisable to allow employees more holidays and fewer work hours so they can enjoy their lives more?

-- Are salaries enough to provide employees with “quality of life”? Is the renumeration system treating people fairly according to the level of each individual’s contributions?

-- Isn’t it advisable to increase the pay-out ratio to a level comparable to that of European and U.S. companies?

-- Are you paying sufficient attention to treating vendors as partners in terms of purchase price and delivery time?

-- Are you and your individual members contributing positively to the local communities? Are you sharing the problems of the community as your own?

-- Are you giving sufficient consideration to the issues of environmental protection and saving resources? Shouldn’t you recognize that the environment, natural resources and energy are the common assets of all human beings?

Besides the decline in natural resources and the destruction of the environment, the world faces a series of tough challenges. How can we settle the current political, economic and social turmoil in Eastern Europe and the former Soviet territories? How can we narrow the difference in the level of economic development between the countries of the Northern and the Southern hemispheres?

Although these and other issues are global in nature, they have a dramatic bearing on Japan as a nation. This is because Japan is deeply integrated into the so-called borderless economy and is thus would be affected by the outcome of these issues. It would seem obvious that Japan, an economically successful nation, should be a partner with the United States and Europe, in terms of human resources and finance, in taking a leadership role in meeting these challenges.

But Japan is not considered a real partner. This must change. Toward that end, it is absolutely essential, as a first step, that Japanese companies see to it that they compete according to the same rules as do the United States and Europe. By rules I mean an approach that gives greater priority to the freedom of each individual member of a company than to victory in the marketplace.

Accordingly, Japanese companies should first change their mind-set with regard to appropriate margins on each product. This might totally alter their pricing mechanism, but they need to compete with Europeans and Americans on that basis. For the first time, Japanese companies could be on a equal footing with U.S. and European companies. They could eliminate the economic fear felt in Europe and in the United States. In the end, Japan could be recognized as a true partner to cope with global issues.

In reality, however, a company would hesitate to put into practice even a minor reform in this regard if it wants to continue to be competitive in the market. To change this mind-set is difficult.