Japan Inc. Bets on Computers, Youth for Future
Makoto Tezuka, a longhaired creative artist, and Koichi Murakami, a buttoned-down engineer, might seem like odd partners in building a new Japan. Yet that’s just what they and their colleagues at this nation’s largest computer maker are doing.
Though they don’t talk in such ambitious terms, they are laboring to create fun-to-use Internet software to make Fujitsu Ltd. a global computer software powerhouse. In turn, that would be a big step toward transforming Japan from a simple exporter of hardware into an Information Age leader. The task won’t be easy. But a national effort to do that--and much more--is well underway.
“Japanese companies are extremely square and not very artistic, but that’s what makes it so interesting to work here. . . . This project shows how Japanese companies may develop in the future,” said Tezuka, 34, his laughing face framed by dyed reddish-brown and blond hair.
Indeed, Fujitsu is a model of how Japan is preparing for the 21st century: It is trimming its payrolls, buying foreign components, moving production overseas, boosting productivity through automation and merit-based pay and promotion systems--and building for the future by pouring money into research and development.
The changes come in response to the crisis of confidence that followed the collapse of Japan’s late-1980s “bubble economy” and its longest post-World War II recession, from 1990 into 1995. Amid social pain and noisy criticism from all corners of society, old practices that served the nation well for 50 years are fading.
Japan’s self-criticism has contributed to worldwide perceptions that its economy is mired and that it lags behind on technology. Now, however, despite its battering by a strong yen, high wages, freer world trade, competition from rising neighbors and sweeping technological change, Japan is stirring anew.
“Japan . . . was in a stealth mode, cloaked behind bad press, tinkering in the R&D; [research and development] labs and deciding first on what the strategies would be here in domestic markets,” said Stephen Anderson, associate professor at the Center for Global Communications in Tokyo. Now “the train is leaving the station.”
Learning From Overseas
To boost this effort, Japan again is learning from overseas: Tezuka and Murakami, for example, encourage a “Silicon Valley” work style--at once easygoing and intense--in their small but influential corner of Fujitsu. The company, like others, is adopting measures--such as cost-cutting, merit pay and targeting resources at growth business--modeled, to some degree, on the downsizing and restructuring that have swept corporate America.
Once convinced that it had surpassed the United States, Japan now fears it lags in key areas of telecommunications and information technology. It is racing to catch up by flooding offices with computers, boosting Internet hookups and pushing crash courses in computer literacy. Despite much foot-dragging, the government is grudgingly unleashing more competition.
What is unfolding in Japan goes far beyond a routine response to an economic slowdown, although that is part of the story of recent times as this nation struggled--finally, now, with success--to break out of recession.
Japan’s old system stressed dedication over flexibility, high productivity over creativity, stability over risk-taking, obedient workers over innovative ones. Those were the qualities that built Japan into an economic superpower, experts say. But they are no longer enough. There are new demands for risk-taking, for quick decisions and responses to the market.
Some firms are responding by promoting younger, more internationally experienced top executives or by hiring recruits based more on signs of initiative than prestigious schooling. For their part, worried salarymen (white-collar workers) are flocking to night school to equip themselves with skills for a new era of pay-for-performance and limited job security.
It’s not just high-tech giants that are remaking themselves to compete better. Firms like Nippon Steel Corp. (still the world’s largest steelmaker) and Toyota Motor Corp. (Japan’s most profitable company in recent years) have had phenomenal success with restructuring, showing that even traditional Japanese industries remain strong despite the pressures of a powerful yen and rising competition from Asian neighbors.
Meanwhile, a handful of upstart firms like Softbank--the world’s largest publisher of computer magazines and biggest producer of computer exhibitions--has exploded onto the scene, drawing strength from flexible, youth-oriented management structures.
Yoshitaka Kitao, Softbank’s chief financial officer, noted that Japan has shown huge bursts of energy before when it felt it was behind.
“With the [1868] Meiji Restoration, it started catching up to the West, and after the war it built itself up from the ashes . . . to become the No. 2 economy in the world,” he said.
Reshaping Culture
Now, “individualism is growing. The earlier generation would put up with anything. [But] the idea that enduring anything is a virtue is gone. . . . In this age of rapid technological change, if you don’t study you are in trouble. Young people accept the challenges,” Kitao said.
Softbank is so fleet-footed, in part, because of its energetic, entrepreneurial founder, Masayoshi Son, 38. Known as a maverick here, he has jumped on unexpected business opportunities--such as a recent hookup with Rupert Murdoch’s News Corp. to launch a digital satellite television service to Japan.
But even at staid Fujitsu, which built its reputation on mainframe computers and customized software for big corporations, President Tadashi Sekizawa is trying to reshape the corporate culture--instituting merit pay and encouraging creative endeavors like Murakami and Tezuka’s project, “TEO: The Other Earth.”
The project seeks to create computerized cartoon characters with artificial intelligence and human-like emotions. Fujitsu hopes the personable figures--smart pets that “live” in one’s computer--will serve as friendly guides for Internet surfers.
TEO’s top creation so far is Fin Fin, a shy but lovable character with a dolphin-like body, wings and legs. He lives on a tree branch in an exotic jungle, appearing on the computer screen when it is not otherwise in use. Although frightened by strangers, Fin Fin can, thanks to its sound and movement sensor, learn to recognize its owner, with whom it builds a friendship. Fin Fin may burst into song when reunited after a long separation.
To free up money for research like this, Fujitsu is slashing costs and pushing for higher employee productivity. Sekizawa, like most Japanese CEOs, says he still won’t fire anyone--in sharp contrast to many U.S. firms, including rival IBM, which returned to strong profitability partly through massive layoffs.
Rewarding Risk-Takers
Given the pressures it is under, Fujitsu no longer can keep both lifetime employment and seniority-based pay, Sekizawa said, noting: “We chose the seniority system to change. . . . Conservative people who want to do things as they used to will, step by step, get lower salaries than those who are willing to take risks.”
Fujitsu also has cut its payroll sharply with reduced hiring, attrition and worker transfers to affiliates or joint ventures. Its work force has dropped to 48,000 from a 1993 peak of 56,000. Fujitsu also is pouring $3.6 billion annually into research and development, mostly on computer software and telecommunications-linked multimedia.
Nippon Steel, which has greatly expanded merit pay in recent years, has dramatically demonstrated what is possible through payroll trims and more effective use of personnel.
Without layoffs, it has slashed its work force to 39,500, down from 55,000 in 1990, including cuts of 7,000 positions from its steel operations in the last two years. Last year, it added merit pay to base salaries for 3,800 managers (up from 1,400); it weights bonuses more toward merit for its 8,100 white-collar employees.
Largely as a result of these measures, profits soared 577% to $608 million in the fiscal year ending March 31, despite a negligible 0.4% increase in sales. Three years ago, the firm ran $300 million in the red.
Along with cost cutting, Nippon Steel boosted automation of its production and expansion into new businesses--including electronics, semiconductors and materials such as composites and ceramics.
At many of Japan’s most famous corporations, similar efforts are underway to cut nonessential spending and focus resources on high technology. Sony Corp., for example, just hit the Japanese market with “Glasstron”--an individual movie screen mounted in a headset for private viewing. U.S. businesses pioneered the technology for these devices and hold some key patents on them. But Sony hopes to make them a commercial success.
While some smaller firms are collapsing under pressure, others are struggling to adapt--among them Matsuya Embroidery Co., which has endured much pain but also achieved results that can make Japan even stronger.
Matsuya, in effect, shifted out of manufacturing and into computer software, artistic design and international management. Six years ago, just before the “bubble economy” burst, the firm employed 25 people, mainly machine operators. Now Toshiharu Nomura, president and owner, has slashed his work force in Japan to 10, most dealing with computers; he shifted embroidery production to the Philippines. He makes special-order computerized instructions used to run machines at Japanese joint ventures in China.
Better Pay, More Hope
Such trends create jobs that pay better than the labor-intensive work shifted overseas; in this lies Japan’s long-term hope for continued and increasing prosperity.
Japanese auto firms also have stepped up overseas production, started buying more foreign-made parts and squeezed suppliers to cut costs.
However painful within Japan, such efforts have a big corporate payoff. Japanese exports are less profitable when the yen is strong. But their restructuring now runs so deep that Toyota and other flagship exporters could still turn profits even if the yen strengthened beyond its record level of 79.75 to the U.S. dollar, analysts say.
The yen-dollar rate now is at about 110; top Japanese exporters could see profits even if that rate hit 70, said Shunichi Ishimura, general manager of the equity department at Nomura Securities Co.
As for Toyota, it trimmed its domestic work force by 5,300, or 7%, from 1992 to 1995, mainly by attrition and sharp hiring cuts. By 1994, it had 48% of its global production overseas; that figure is up to 60% this year, and the firm hopes for 65% in 1998. The transfers have helped ensure access to overseas markets and greatly insulate the firm from fluctuations in exchange rates.
A New Kind of Recruit
Toyota also is seeking a new kind of recruit, with more emphasis on ambition and purpose and less on university background.
In the past, “we thought if he or she is from Tokyo University [Japan’s most prestigious school], they must be great,” spokesman Koki Konishi said. “The name of the university was really important.” But last year, Toyota decision-makers hired a quarter of its fresh-from-school employees without knowing their university, Konishi said.
Japan Inc. long has kept its employees on a kind of corporate conveyor: Every year, hordes of eager students--hair freshly cut, buttoned up in look-alike dark suits--make the rounds of potential employers and then are pulled into companies for life. This is still the way most of Japan works, but it is changing.
Companies find they need more flexibility in hiring to weather bad times better and to pump themselves up faster in the good. They are starting to look for different types of employees to fit their new aspirations; firms, more and more, want rebels, hoping they also are innovators.
Ito-Yokado Co., a huge supermarket chain and Japan’s second-most-profitable retailer, recently decided to start hiring twice a year instead of just in the spring--a tiny change but one with important implications. If good companies start hiring on a more varied schedule, it opens options for those who wish to switch jobs or spend time abroad. And, indeed, unlike most big Japanese firms, Ito-Yokado doesn’t limit itself to grabbing new graduates; only 20% of its new hires this year were fresh from school.
“Our company is internationalizing,” Ito-Yokado spokeswoman Kazuko Itakura said. “We are looking at hiring from a global view. We want more . . . people who have worked overseas, people who want more of a challenge . . . people who have more experience.”
Toshiba Corp. has also initiated new hiring practices and even has put help-wanteds on the Internet for experts in law, international marketing, product management, environmental technology and Net research. It has said the ability to speak Indonesian would be an asset for an applicant. “Until now, when we did recruiting, we had no specific qualifications,” Toshiba spokesman Keisuke Omori said. “This time, we have a challenge for students. We want people who have a specialization.”
While seniority is still a greater factor than merit in determining pay and promotion at most Japanese firms, recent years have seen a shift toward more emphasis on performance at many companies--and many more say they intend to move swiftly in that direction.
Even as such changes boost productivity they spread uneasiness. Yet there are some--mainly ambitious younger employees, often those with computer skills--who prefer the emphasis on merit, even if it means the comfortable atmosphere of Japanese offices is giving way to competitive pressure.
Toshihiko Matsuo, 39, a sales manager at a software development firm, likes the new approach. After college, as a salesman for a prominent hotel chain, he resented the idea that hard work went unrewarded, with promotions and pay based almost entirely on seniority and which university one attended. “This method is much better at making you feel like working hard,” said Matsuo, whose firm introduced merit pay two years ago. “I’m happy.”
Some white-collar workers, still near the bottom in conservative firms that barely have begun to change, can’t wait for the day when people are judged on ability, not age.
Kenichi Fujimoto, 29, a junior executive in sales at a large manufacturer, is one of those who chafes under the seniority system.
“We are doing the work, but when it comes to an important meeting overseas, the older people go, even if they don’t know what is going on,” he complained. “Look at the Europeans and Americans: They send people my age overseas on important business trips all the time. . . . I don’t like the fact that people with talent can’t move up. It’s strange. . . . I wish we could cut more people.”
Japan’s economic changes have liberated some corporate warriors to reassess their lives. They put new emphasis on themselves, their families and communities. Many flock to volunteer work or take on self-improvement activities, sports or family outings. A few have even run for public office, long a no-no in Japan’s corporate culture.
A new book, “The Soft Salaryman,” published by Nikkei Shimbun, Japan’s leading financial daily, buttresses with poll data the notion of a new worker consciousness here. In one survey, 46% say they have free time, compared with 35% five years ago. Prompted by the new uncertainties, many want to gain computer training, to learn a language or to earn real-estate credentials.
Investing in Self
Masa Takehara, 31, who works for a large financial firm, is studying hard--three nights a week and Saturdays to get an MBA. He’s also trying to become a U.S. certified public accountant. He reasons that employees can no longer count on corporations to provide lifetime employment.
His own firm recently instituted merit pay for managers. Although that move hasn’t affected him, it contributes to his concerns about the future, he said, adding: “I think I have to start worrying. As you get older, more and more people are squeezed out. . . . I’m preparing myself.”
Unlike older employees who once believed that their companies would care for them practically from cradle to grave, he says that “unless each employee in Japan makes an effort, job security for the future will not be guaranteed.”
Takehara added that many Japanese are shocked but stimulated by experiences with American professors at night business school because they are made to think about themselves in a way they never have before.
One professor stunned a student by asking him, “Why don’t you learn your price in the marketplace?” Takehara said he wants to know his market value but has never visited a headhunter who could tell him. “I’m scared to go.”
While some lament the effects of Japan’s many changes, Yukio Noguchi, a Tokyo University economics professor, argues that “traditional practices” were never deeply ingrained but rather were the product of the World War II mobilization and labor reforms instituted by the U.S. occupation.
He, like many other economists, thinks Japan is still too slow in its restructuring. The nation, Noguchi says, must toughen up more--and loosen up, with fewer regulations tying up economic life--if it is to meet the challenges of the 21st century. “The problem is, how far have we changed compared to the external changes?” he asked.
Times staff writer Teresa Watanabe and Chiaki Kitada and Megumi Shimizu of The Times’ Tokyo Bureau contributed to this report.
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GLOBAL POWERHOUSE
On top of the boost it will gain from restructuring, Japan retains many strengths that experts say made it one of the world’s economic superpowers. These include:
* Stress on Education--Japan has a 99.99% literacy rate, with 92% of Japanese graduating from high school compared with 76% in the United States; 45% of Japanese get at least some college education.
* Quality Workers--One of the most technically skilled, highly disciplined manufacturing work forces in the world.
* High Savings--Annual national savings equal to 33% of yearly economic output (GDP), compared with about 15% for the United States. Japanese household savings alone in 1994 equaled 12.8% of disposable income, compared with 4.2% in the United States.
* Strong Investment--Annual national investment, including everything from new factories to new highways, equals 30% of GDP, compared with about 15% for the U.S. Corporate investment in 1995 equaled 15% of GDP, compared with 10% in the U.S.
* Public Safety--Among the best in the world. There were 1,281 murders in Japan in 1995, while New York City alone had 1,182 murders that year.
* Income Equality--The gap between rich and poor is much less in Japan than in the U.S. Average income for the top 20% of Japanese society is 2.9 times that of the bottom 20%; the U.S. ratio is about 9 to 1.
* Planning--Although bureaucrats are criticized as unresponsive to the public, and corporations are criticized for ignoring stockholders, these negatives carry a positive side: The government and business executives can make decisions focused on long-term goals.
* Overseas Assets--Net overseas assets, including everything from U.S. Treasury bonds to Japanese-owned factories abroad, total $713 billion, by far the largest of any nation. By contrast, by one report, the U.S. had a net overseas deficit--the amount owed to foreigners beyond the assets Americans or their government own overseas--that totaled $629 billion at the end of 1994.
Sources: Japan Education Ministry; “OECD Indicators”; World Bank; Lehman Brothers Japan Inc.; Japan National Police Agency; Management and Coordination Agency of Japan; “What Is Japan?” by Taichi Sakaiya; Finance Ministry of Japan.
