Japanese Not So Hidebound That They Haven’t Learned the Game

Americans have long thought that the Japanese are unique. The popular belief is that Japanese culture and thought processes are fundamentally different from any other in the world. Interestingly, many Japanese themselves believe the same thing. Numerous books and articles claim, for example, that the Japanese are nonlitigious, preferring to resolve their differences by patient negotiation and compromise rather than “lose face” by resorting to outsiders or the judicial system to settle their differences. While portions of these myths have elements of truth, significant portions are misleading. And as Japan and Japanese business become ever more integrated into the world economy, these erroneous portions of the “myth of Japan” become ever more dangerous.

The simple fact of the matter is that Japanese business and culture are inexorably changing. As Japanese industry globalizes, it is adapting to the world stage on which it is a very large actor. While certain Japanese cultural traits--such as the need for companies to reach consensus decisions--are deeply ingrained, other patterns of behavior are changing radically. The rules by which the Japanese have long done business in Japan are not working in America. Indeed, some people would even argue that the Japanese rules are not working in Japan, as seen by the inability of the Japanese bureaucracy to react quickly to the devastation of the Kobe earthquake.

But make no mistake, the Japanese are changing the way they do business.

Several recent developments clearly demonstrate this evolution. Perhaps the most prominent is the filing several days ago of a Chapter 11 reorganization petition by the blue-chip Japanese owner of New York’s Rockefeller Center. Mitsubishi Estate Co., which acquired 80% control of the New York landmark in the late 1980s for $1.4 billion, bore losses of more than $600 million before deciding to put the project into bankruptcy. By filing for reorganization, Mitsubishi hopes to restructure the center’s mortgage and bond debt, which is held by a public real estate investment trust, or REIT.

In response to the bankruptcy filing, the president of the REIT stated: “We think it is unconscionable to attempt to take advantage of U.S. bankruptcy law in light of Mitsubishi Estate’s significant assets.” Any American owner faced with over $600 million in losses would have put the project into bankruptcy years ago; bankruptcy long has been a favored tool of overburdened American debtors. It only stood to reason that once the economic pain became intense enough, the Japanese would grab the same tool. To think otherwise is falling prey to the myth of Japan, and to castigate Mitsubishi for filing Chapter 11 is disingenuous.

Just as Mitsubishi was arriving at Bankruptcy Court in New York, Toyota was declaring that it might have to shut down plants and consider layoffs because of the cost of manufacturing in Japan. Bear in mind that Toyota is sitting on cash reserves of $26.23 billion (many Japanese refer to the car manufacturer as Toyota Ginko, the “Bank of Toyota”), and that Toyota has never laid off a production worker since 1951, reflecting the Japanese practice of life-time employment. For Toyota to take this approach is a radical and fundamental shift.

Yet another indication of Japan’s changing ways is that Japanese buyers who were acquiring trophy properties in the United States at inflated prices have begun actively suing other Japanese parties in the U.S. courts on a variety of grounds. A spate of lawsuits in California and Hawaii, in particular, have subjected traditional Japanese business practices to scrutiny under American legal standards. While these suits are still pending and the results are unclear, the remarkable thing is that the suits were filed in the first place. The Japanese are no longer reluctant litigants, and they are increasingly using the U.S. legal system for many of the same purposes that Americans do. Perhaps most remarkable is that Japanese are using the American legal system to resolve disputes with one another. In the past, these disputes would have been settled behind closed doors in Tokyo.

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Simply put, competitive pressures are remaking the face of Japanese business. American business practices are not so alien; the Japanese are not so unique.

Japanese consumers themselves are helping propel this change. Because of the ever-increasing strength of the yen, Japanese tourists continue to flock to America and other low-cost destinations. Recent reports from Hawaii indicate that Japanese are coming by the planeload to stock up on low-cost American goods. When they return to Japan, they are struck anew by the astronomically high cost of living. In reaction, many are turning to lower-cost imports. Low-cost American computer companies, such as Dell and Compaq, are responding by quickly revolutionizing the sale of PCs in Japan, eroding NEC’s former stranglehold on its home market.

America and Japan will continue the debate about trade deficits and market access. The United States may even follow through on its promise to impose sanctions on Japanese automobile imports.

In the meantime, though, Japan will continue to adapt, as it has for hundreds of years in response to any number of crises. One likely result will be Japanese businesses that approach their problems in a more American fashion. The ultimate effect will be the evolution of a new global approach to business that combines elements of both America and Japan. The process will no doubt be painful. For Japan, a successful conclusion carries great potential. For America, it means an even more capable competitor.