Conflict and Change: Foreign Ownership and the Japanese Firm

By George Olcott

Cambridge University Press, 2009, 279 pages including index, ISBN 978-0-521-87870-8

Review by Sir Hugh Cortazzi

Three firms were studied by George Olcott in this well researched book, these were Shinsei Bank (formerly the Long Term Credit Bank), Chugai Pharmaceutical Co and Nissan. He compares the trio of firms, which are controlled by foreign capital, with three firms in the same lines of business which are not identified.

The main themes (chapters) cover how different Japanese firms are in their recruitment and training, lifetime employment and career patterns, reward systems, female employees, as well as organisation and the decision-making process. The study is only concerned with white-collar workers.

Olcott in his introduction tells readers how one Japanese company asked him when he was working for S.G. Warburg in Tokyo to give advice on a brochure they had prepared for foreign investors.  When he looked at the draft he was struck by the absence of any reference to shareholders. When he pointed this out his Japanese interlocutors said “Naruhodo” [Oh yes, of course, but it had not been of course for them in the past!].  In the last few years Japanese firms have been forced to pay greater attention to shareholders but many Japanese firms, like some British banks, although in their case it is only the top employees and directors for whom the bank seems to be run, still seem to be managed primarily for the employees.

Japanese firms have been forced by the bursting of the bubble and increased competition to modify the post-war structure of life-long employment, decision-making by consensus through the “ringi” system, payment largely by seniority, and subordination of women. One modification has been that a higher proportion of employees have been taken on as temporary workers who can more easily be laid off in a recession and whose benefits and salaries are lower than those of permanent staff.  There has also been greater attention to shareholders as one of the stakeholders in the company, but it is clear from Olcott’s study that even in the Japanese firms controlled by foreign capital, there is considerable reluctance to adopt western or perhaps we should say Anglo-Saxon ways of doing business and employing staff.

It would be wrong to condemn the whole Japanese system because of its undoubted weaknesses. It did bring stability and engendered loyalty. Its emphasis on equality helped to ensure harmony. Despite its weaknesses and over-hierarchical bureaucratic structures Japanese firms especially in manufacturing have generally retained their competiveness, have continued to maintain their investment in research and development and generally managed to increase productivity. They did not always provide happiness and job satisfaction (some firms were ruthless in sending employees hither and thither without considering the implications for their families) but they did provide job security and reasonable rewards. Japanese firms under the old system would not dismiss anyone for incompetence, but would rather relegate them to the window. This was expensive and meant that the ambitious young employees often felt frustrated but the average employee was probably happier in the old style Japanese firm than in one run more on Anglo-Saxon lines.

The old system had, however, to change with globalisation.  Deregulation became necessary to ensure that Japanese companies modernised to meet the changing patterns of world trade. Japan had to accept foreign capital and knowhow and this inevitably meant at least some elements of foreign management style.

Olcott’s book shows that Japanese firms under foreign ownership can become more profitable and possibly better employers, but there is no single formula for how best to do this and change cannot be effected overnight. Much depends on the individuals involved and their sensitivity in handling the inevitable culture clashes. But these need not involve ‘conflict,’ a word in the author’s title which is misleading.

Olcott quotes (page 248) a Nissan manger as saying: “You need to have for this kind of alliance people who are really open to other cultures, very globally minded, with a lot of understanding of different points of view.” This clearly applies to both the foreign investor and the Japanese company involved. The author provides a list of the conditions for success (page 256) which should, as he says, be self-evident, but some intelligent people, foreigners and Japanese alike, sometimes, because of prejudice or obstinacy, fail to see the obvious.  Of these conditions perhaps the final one provides the key: “an understanding that learning is a two-way process, that the local operation almost certainly will have something to teach the rest of the global organisation.”

Those responsible in foreign companies contemplating investment in Japanese companies should read this book before plunging in with their wellington boots.

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