Business in China
Individual Assignement
George William Fisher

Table of Contents

Write an Individual Essay on business or business cultures in Japan. Give a detailed argumentation for your descriptions. 2 Japan Business Background 2 Meiji era 3 End of the Second World War 3 The Economic Miracle 5 The “Bubble” and the “Lost Decades” 7 SWOT Analysis 9 SWOT Analysis Findings 9 Japanese Industries 10 The Future 11 Reference: 12

Write an Individual Essay on business or business cultures in Japan. Give a detailed argumentation for your descriptions.

Japan Business Background

Despite the growth of China and India as both regional and global economic super-powers, Japan remains a major force in world status with leading players in sectors such as banking and finance, software, automotive and pharmaceuticals. and it would be unwise to switch attention away from this potentially lucrative market. The approach that the Japanese people make to business is determined by their historical values and their society as a whole. Japan has the world’s third largest economy, with a very strong democratic setup and stable macroeconomic policies. There were many historical events that took place, which had a large effect on the economic development of the country.

Meiji era

This era of Japan’s history, which ran from 1868 to 1912, symbolised the shift of Japanese society from being isolated to becoming its modern form.
The first industrial revolution, of the Meiji era occurred as response to the growing industry in western countries and areas like the US and Europe. If this era had not existed, then it is likely that Japan would not be in the position it is in today. Its purpose is the security and the power of the nation, “a rich country, a strong army”. Because its entrepreneurialism wasn’t strong enough, the government decided to create one under the name of capitalism without capitalists. During the Meiji era, Japan carried out a number of modernisation measures allowing them to import new technologies and ideas from Western countries with greater ease. These were large economic decisions like building infrastructure such as railroads, roads, and land preparation for further improvements. This then allowed the Japanese economy to push towards a more modern type of economic growth, from the mid 1880’s onwards.

End of the Second World War

After the defeat of Japan in World War II, the United States led the Allies in the occupation and rehabilitation of the Japanese state. Between 1945 and 1952, the U.S. occupying forces enacted widespread military, political, economic, and social reforms (US History, 2014). From the end of the war, Japan experienced what has been widely discussed as the “Japanese post-war economic miracle.” This relates to the fact that Japan had a record period of economic growth from 1945 to the end of the Cold War. The US played a major role in the recovery of Japan by placing policies to reconstruct and recover the nation, which led to the rapid growth. The US stepped in to ensure that the Japanese nation wouldn’t have any pressure from the Soviet influence in the Pacific. These policies are as follows:

1. Breakup of the Zaibatsu 2. Land reform 3. Labour democratisation

The first reform implemented was the breakup of the Zaibatsu. Zaibatsu were the huge conglomerates, which in 50 years had transformed Japan into an industrial power. After the war, japans new industrial nation was founded not on those who had been powerful prior to the war, but those that were considered noble but impoverished. This provided a sense of modesty and control when Japan began to expand from the end of 1945. This destroyed Japan’s military power both psychologically and institutionally. The zaibatsu were a group of businesses that were treated more preferably by the government than others. This was often through lower taxes and receiving large funds allowing the business to expand. The breakup happened by breaking up the holding companies, and to have their stock sold to the public. The next stage of the break-up was the new form of conglomerates called Keiretsu. These were bound nether by family or holding company ties, but by shareholdings across them.

The second policy that was implemented was land reform. In 1947 the land reform program stated, “landlords who owned more than the permitted amount had to sell the excess land to the government at a fixed price”(Cross Currents, 2003). The government then sold the land at the same price whilst giving preference to any tenant who had bee farming on the land previously. This reform worked for two reasons; firstly it re distributed some of the wealth from families that owned vast amounts of land. Secondly, due to the rampant inflation increases from 1946-8, the value of the currency in Japan also depreciated, meaning that what people were paying for the land years later was considerably less because of the government fixing the price.

The third major reform was labour democratisation; this allowed the Japanese to form labour unions and expanded so that the electorate included all adults, including women. The new constitution also put in place rights such as the right to labour to bargain collectively. The number of workers in organised unions rose dramatically from 0 in 1945 to nearly 60% in 1948-49. Labour unions were needed because of the breakup of the Zaibatsu and the poor working conditions and low wages. This led to the creation of The Trade Union Law in 1945.

The Economic Miracle

In the mid-1970s the world oil crisis meant that there was a priority given to a new generation of industry with revolutionary production ways: “zero stock” strategy and a quality control “zero defects” standards. From this point in time these corporations were the spearhead of an impressive and extensive export strategy, and were also helped with the value of the currency against the USD. Because of its new ways and the strength of the Yen, Japan becomes quickly one of the major export economies in the world. As the graph that follows shows, in the 1990’s, its GDP per capita exceeds that of Germany, France, China, India and the United Kingdom.

Japan made use of their characteristics to expand the economy. Since 1995, there has been significant investment by Japanese firms in the technology and software sector. There is evidence to suggest that the Japanese economy has lagged behind the US, but the investment that the Japanese companies have put into the sector via technology research has been similar to the US. Japan has created new technology such as low-cost mass productions systems. Combining many technologies that were imported from abroad has allowed companies to exploit these resources. Technological improvements contributed greatly to its economic growth, as improvements in one industry would have an impact on the growth of other industries, such as car manufacturing, with a good example being Toyota and its systems from the 1970s. Due to technologies being developed, this led to improvements and modifications, which in turn allowed the Japanese economy to compete in International markets with everyday consumer goods such as TV’s, telephones and IT services.

The “Bubble” and the “Lost Decades”

After three decades of the “Economic Miracle” and from 1985, the overabundance of liquidity generated by the large quantities of trade surplus value of the Yen being high relative to other currencies (Endaka) drove the economy towards a speculative “bubble”. The main way in which the bubble was visible was through stock and real estate prices. The value of the stock and the real estate tripled in 5 years. This swelling unrelated to the real economy led to an economic disaster in 1990, the Tokyo Stock Exchange collapse. “Japan’s Nikkei stock average hit an all-time high in 1989, only to crash in a spectacular fashion shortly after, causing their real estate bubble to collapse and throwing the country into a severe financial crisis and long period of economic stagnation known as the ‘Lost Decades.”(The Bubble, 2012) As we have learnt from the recent economic crisis in 2008, when a event like this occurs banks that had accorded loans without caring will find themselves overwhelmed by a mass of bad debt. When the banks begin to fail, when the governments begin the process of quantitative easing, the banks use that money to cover their losses and the people do not get the money.

There were many large Japanese companies, already damaged from the bursting of the “bubble”, who had discovered that they have lost some competitiveness within the international markets, due to the imminent increases in interest rates and the damage done to the Japanese Yen.
The collapse of the financial system turns into a long recession, which shows the ageing of the “Japanese model” from the 1940s, and the failure of this model to adapt to changes that the Japanese economy has gone through to globalise.

One major factor in doing business in Japan is the connections past and present with the US. After the US exited the Cold War, they put a lot of pressure on Tokyo to try and force Japan to commit towards outward orientation process. Up until this point, there had been little pressure on the Japanese market as there was protection from international competition. The Asia crisis, which broke out in 1997, and gripped most of eastern Asia, further damaged the situation in the Japan. As at the time Japan was Asia’s largest export market. The model they had been following for 40 years had to change, like many countries from western economies had done.

Japan’s mega corporations must identify the opportunities that can be exploited in relocating their production, and therefore part of Japan’s economy, to neighbouring countries where labour is cheap. This helped focus on a new generation of industries and services of high technology and high added value and reduce production costs everywhere to restore its competitiveness.

The social cost is higher and higher: Japan became acquainted with the “social plans” on a large scale. More than two Million manufacturing jobs were lost between 1993 and 2001, and nearly 350,000 small businesses and shops have closed at the same time. The official unemployment rate, which was only 2% in 1990, has risen to 5.6% in early 2002 (3.7 million): This is the highest recorded level for fifty years, but the actual rate is probably nearly double.

SWOT Analysis

Strengths | Weaknesses | * Program planning and production potential * Unique qualities, animation and gaming * Developed broadcasting industry * Strong economy * Quality of life and social care * Distribution network for automotive industry * Hard working culture * World class education system | * High wage costs * Weak prosecution system * Violation of human rights * Fiscal budget deficit * No natural resources * Reliance on exports of energy * Non verbal communication * Relaxed culture clashes with western * Many Japanese go to other countries for higher education | Opportunities | Threats | * Legal changes to boost M&A Presence of large global companies Private equity in Japan * Emerging market proximity * Location in the Pacific * Pro-Reform Political Parties in Japan * World’s third largest economy * Foreign influences and cultures welcome * Increase if women in business situations | * Political instability * Declining judicial reviews * Unstable economic environment * Risk of defaults * Declining birth rate and long life expectancy Natural disasters * Small levels of foreign direct investment * Risk of natural disasters |

SWOT Analysis Findings

As mentioned previously, since the war Japan has had a very strong democratic setup with stable macroeconomic policies and an open view to globalisation, FDI and exports. The current government are introducing new strategies to try to improve growth in the economy and with employment. They also have a very strong relationship with the US. There is however political unrest and uncertainty over the reliance that the Japanese government has put into nuclear power, after the disastrous events that occurred after the 2011 tsunami at Fukushima.

As Japan is a keen user of nuclear power, and clearly earthquakes and nuclear do not mix well, it may be an idea from them to find new sources of energy. This may even attract new business propositions if the levels of investment that the government puts into a new project are sufficient. For example, in 2014, there are proposals to create an offshore floating wind power generation station (Kantel, 2014). This would be the first of its type in the world and may attract companies to invest further into it.

Japanese Industries

One thing that may prove difficult for businesses is just how long and arduous the process is for setting up a business. There are many requirements that the government of the region need before you are allowed to start trading, such as an office or a comprehensive business base. There are many laws that have to be adhered to whilst you are operating. The larger the company, the more municipal tax that the company has to pay, as this is based on the levels of capital stock. This can make it very difficult for small business owners to be able to be creative and survive long enough to turn a profit. With the global recession of 2008, it is essential that in the future the Japanese government make it easier for business owners to arrive and expand in order to attract the needed investment.

Being that Japan is the second largest economy in the world. It is also one of the leading countries of its high per capita GDP (Approx $23,000 USD). Japan is very dependent on exports from their homegrown companies like Toyota, so when the global economic crisis hit, it affected the Japanese economy hard. With falling global demand and the fallout from the crisis meaning a lot of people in the considered “wealthy” countries becoming unemployed, international purchasing power fell. The unemployment rate in Japan is relatively low, with just 3.5% of the population in 2014. At its worst the rate was at 5.6% in 2009. One of the positive things about unemployment is that it reduces pressures in the labour market. This, in turn, reduces the wage pressures. This can be beneficial for business as it means that their costs are reduced if they can survive.

The Future

In the future, it is hopeful that the Japanese economy can once again adapt as it has done in the past to the new market conditions post-crisis. In May 2014 the OECD has ruled that even though the export market has slowed, the improvement in business confidence and global labour market should offset the negativities. Also, as the world recovers from the recession, the export market should increase its significance in the Japanese economy. The economy will continue to adapt and change as long as there is a government in place that can see the potential and regulate the Japanese economy to be stable and make it a trustworthy country to invest in.

Reference:

http://www.grips.ac.jp/forum/pdf06/EDJ.pdf http://www.lehigh.edu/~rfw1/courses/1999/spring/ir163/Papers/pdf/mat5.pdf http://www.larousse.fr/encyclopedie/divers/Japon_activités_économiques/185397

https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html https://www.jbic.go.jp/en/finance/resource http://www.springer.com/social+sciences/population+studies/book/978-4-431-54830-0

http://www.bloomberg.com/news/2014-04-15/japan-s-population-shrinks-for-third-year- as-ranks-of-aged-grow.html

http://www.telegraph.co.uk/finance/comment/10392248/Its-not-yet-the-end-of-the- world-as-we-know-it-but-watch-Japans-debt-grow.html http://usatoday30.usatoday.com/money/markets/ 2011-03-16-1Ajapaneconomy16_CV_N.html

http://news.nationalgeographic.com/news/the-2011-japan-tsunami-was-caused-by-largest- fault-slip-ever-recorded/

http://www.bbc.com/news/world-asia-pacific-14918801 https://history.state.gov/milestones/1945-1952/japan-reconstruction http://www.economist.com/node/347271 http://www.crosscurrents.hawaii.edu/content.aspx?lang=eng&site=japan&theme=work&subtheme=AGRIC&unit=JWORK099 http://www.thebubblebubble.com/japan-bubble/ http://www.kantei.go.jp/jp/singi/keizaisaisei/pdf/honbunEN.pdf http://expatsguide.jp/ch3
http://www.oecd.org/economy/japan-economic-forecast-summary.htm