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Katsuo Yamazaki

Japanese Global Strategy Overseas Operations and Global Marketing Japanese Global Strategy Katsuo Yamazaki Japanese Global Strategy Overseas Operations and Global Marketing Katsuo Yamazaki Yamazaki Dynamic Management Corporation Tokyo, Japan

ISBN 978-1-137-49736-9 ISBN 978-1-137-49738-3 (eBook) https://doi.org/10.1057/978-1-137-49738-3

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This Palgrave Macmillan imprint is published by the registered company Springer Nature Limited The registered company address is: The Campus, 4 Crinan Street, London, N1 9XW, United Kingdom Preface

Terminology and the Research Process

The purpose of the book is to explore global corporate strategy in Japanese companies. My primary aim is to clarify is how Japanese companies achieve their global management objectives, what kind of theories they adopt and how they put these theories into practice in corporate and marketing strategies. Thus, I am concerned with the management history vis-à-vis global strategy in Japanese companies and with the way a hybrid theory can explain the latest Japanese global strategy, called monozukuri strategy. Both theory and strategy are discussed in Chaps. 1 and 4. I do not address Japan’s economic history and industrial development after World War II. A glossary of the technical terms we use, originally Japanese, is found in Appendix 1 at the end of Chap. 1; all the words in the list appear in italics in the text. People in business and academic circles define ‘strategy’ in various ways. According to Robert Grant:

A strategy serves as a vehicle for achieving consistent decision making across different departments and individuals. In other words, it acts as a vehicle for communication and coordination within an organization. (p. 4)

v vi Preface

The word originally comes from the Greek strategia, prior to stratégie in French. Both mean ‘generalship,’ that is, ‘the office of the general’ or the ‘command’. In this book ‘general’ is regarded as equivalent to a president or a head of the international business unit of a company. I submitted a questionnaire to two persons in the role of ‘general’ and conducted interviews. Examples of questions directed to the president and to the executive are shown as Appendices 2 and 3 at the end of Chap. 1. My first book, published by Palgrave Macmillan in 2012, was based on interviews conducted mainly from April 2001 to March 2009. I then abstracted some successful business theories from phenomena observed in these interviews (Yamazaki 2012). The research for this, second, book was conducted after April 2011 up to the end of 2015. I visited subsidiaries in Asia and Africa to examine responses to the changing political and economic situations on these continents. Reviewing the research of Japanese companies in foreign countries, I chose nine companies for case study, including Denso Corporation, Furukawa Electric Co., Ltd., Hamamatsu Photonics K.K., Kanefusa Corporation, Komatsu Ltd., Mabuchi Motor Co., Ltd., Yamaha Motor Co., YKK Corporation, and Yokogawa Electric Company. All these outfits are deeply engaged in global businesses. Most (with the exception of Hamamatsu Photonics K.K. and Kanefusa Corporation) were also included in Japanese Global Management, as many readers will be interested in what happened in those companies after 2011. All nine companies are clearly examined with SWOT analysis, in Chap. 4. I directed the questionnaire to persons responsible for the international transactions of their respective company and followed up with a request to interview them. I did the same with the company presidents. From the two parts of this process, I was able to discover the global marketing strategy, especially in their focus areas. They seemed to give Asian and African markets priority over Latin American and European markets. Chapter 5 delves deeply into Indonesia, Kenya, Nigeria, South Africa, Sri Lanka, and Vietnam with respect to their prospective markets—geographically and economically. How subsidiaries are controlled is a second concern of this book. Laissez-faire is one approach; a strict reporting system is another. Something between the two approaches might be the case, depending on Preface vii a country’s situation. The third concern looked at is the size of a market is and what items or products the company will expand to include in the future. The amount of overseas sales of some companies outnumbers that of their domestic sales. The percentage of foreign business out of their whole business operation they deem optimal, and how they would reach such objectives are important considerations. Certain questions were addressed differently from company to company. Examples of a question directed to the president and another to the executive are seen at the end of the preface. In Chap. 6, the essence of Japanese global strategy is abstracted from the discussions in all previous chapters.

Tokyo, Japan Katsuo Yamazaki

References Grant, Robert (2000) Contemporary Strategy Analysis – 3rd edition, Blackwell Publishers Ltd., pp4, 23. Yamazaki, Katsuo (2012) Japanese Global Management–Theory and Practice at Overseas Operations, Palgrave Macmillan, pp178–183. Acknowledgement

This book is dedicated to my late father, Yoshio Yamazaki, who encouraged me to study in famous schools, without trepidation about the cost, during my youth, and to the late Dr. Paul Samuelson, who opened for me the door to learning economics when I had the opportunity to meet him in 1965. I offer my gratitude to those in the companies discussed here who gra- ciously accepted me when I visited to conduct research, even in the midst of their busy day. Though my visit did not benefit their profits directly, each was open-minded and indulged my presence. Those who have opened doors or played a part in my work within the international management transfer study deserve mention. I would like to acknowledge Dr. Tetsuo Abo and members of the Japanese Multinational Enterprises Study Group (JMNESG), especially Professors Hiroshi Kumon at Hosei University, Hiroshi Itagaki at Musashi University, and Wooseuk Juhn at Chukyo University, in Japan. Finally, I gratefully acknowledge the various suggestions for improvement that were made during the editorial process at Palgrave, and thank as well Muneo Sube, Professor of Linguistics at Shizuoka Sangyo University, who devoted his time to work as a proofreader for the manuscript.

ix Contents

1 Introduction 1

2 The Process of Monozukuri in Global Business Environments 17

3 Hybrid Theory and Japanese Global Management 33

4 Case Studies on Japanese MNEs: Global Strategy 55

5 P rospective Global Markets 123

6 Golden Rules in Global Corporate Strategy 157

Bibliography 171

Index 177

xi List of Figures

Fig. 4.1 Business group overview 57 Fig. 4.2 Sales amount by product line 71 Fig. 5.1 Main economic results (2005–2016) 134 Fig. 6.1 Comparison between case companies and external subsidiaries 160 Fig. 6.2 Comparison of case companies with others in four-perspective evaluation 161 Fig. 6.3 Simplified concepts of three fields in terms of elements. (a) Elements of International Society, (b) Elements of International Politics, (c) Elements of International Economics and Management 168

xiii List of Tables

Table 1.1 Overview of FDI activities in case study companies 3 Table 3.1 Revised four-perspective evaluation method 42 Table 3.2 Extent analyzed by environment for 23 items 43 Table 4.1 Synopsis by region in 2015 57 Table 4.2 SWOT analysis (Denso) 62 Table 4.3 SWOT analysis (Furukawa Electric Co., Ltd.) 69 Table 4.4 SWOT analysis (Hamamatsu Photonics) 75 Table 4.5 SWOT analysis (Kanefusa) 82 Table 4.6 Sales breakdown of construction, mining and utility equipment by region 89 Table 4.7 SWOT analysis (Komatsu) 93 Table 4.8 SWOT analysis (Mabuchi Motor) 100 Table 4.9 SWOT analysis (Yamaha) 108 Table 4.10 Management data at YKK by regional headquarters 109 Table 4.11 Where YKK products made in four African factories are sold 111 Table 4.12 African countries in which YKK has manufacturing operations 111 Table 4.13 Basic information regarding YKK’s four factories in Africa 112 Table 4.14 SWOT analysis (YKK) 113 Table 4.15 SWOT analysis (Yokogawa) 120 Table 5.1 Japan’s aid to Vietnam: 2011 to 2015 132 Table 6.1 Comparison between case companies and external subsidiaries 159

xv xvi List of Tables

Table 6.2 Comparison of nine companies with others in four- perspective evaluation 161 Table 6.3 Comparison list for three Asian countries 163 Table 6.4 Comparison of three African countries 164 Table 6.5 How Japanese global companies view the African market in relation to their global strategies 166 1

Introduction

Synopsis of the Book

All nine companies examined here are classified as secondary industries. The book tries to emphasize that they are manufacturing companies, but they practice production with the Japanese corporate strategy of monozukuri. Monozukuri is part of a total management system that was established after and has been cultivated since World War II. Chapter 2 briefly surveys what has evolved in Japanese management thinking since the 1900s. In addition, the way Japanese global corporations cope with the global business environment is discussed. In Chap. 3, “Hybrid Theory of Application and Adaptation” is explained. The author has been a member of the Japanese Multinational Enterprises Study Group (JMNESG), headed by Dr. Tetsuo Abo, emeri- tus professor at University of Tokyo for 16 years. As a member he has researched international management transfer among Japanese companies and their subsidiaries. JMNESG established the “Hybrid Theory of Application and Adaptation” (Abo et al. 1994) for Japanese companies in foreign countries. JMNESG’s accumulated big data on other companies around the world was compared with the nine Japanese companies

mentioned here: the research was analyzed for differences in management style and how these differences affect global corporate strategy. The hybrid theory is based on academic research dealing with foreign direct investment (FDI). Once multinational enterprises (MNEs) decide on FDIs, they ask how they will manage the companies in host countries. JMNESG began its management transfer research in the United States in 1989 by visiting Japanese American companies. Up until 2015, JMNESG visited more than 280 Japanese companies in 35 countries and analyzed 23 items relating to aspects of management; scores were assigned on a 5-point scale based on the criteria seen in the document in Appendix 4. The range of scores indicates the degree to which these Japanese companies abroad adopted the business practices of the home. A score of 5 showed their overseas subsidiary company was operating almost the same as their home company in Japan. At the other end, a score of 1 meant the subsidiary conducted its management in the most adapted way. The scores 2, 3, and 4 represent the applied degrees of Japanese management between the scores 1 and 5. In the process of establishing criteria for assigning scores, JMNESG compared American with Japanese management as preliminary-research in 1987 and 1988. Furthermore, a comparable study similar to the above between European and Japanese management was executed in 1997 and 1998. Utilizing JMNESG data, three management systems are neatly summarized. JMNESG accumulated statistical data in all areas in the world except Russia. The author will analyze aspects of corporate strategy and compare the average application scores with those in the nine-case companies. Unfortunately, the theory is lacking in sales and marketing aspects, so I supplement it with one item of management aspect in host countries. The results of the research from visiting the nine companies and two of the questionnaires in Appendices 2 and 3 are explained in Chap. 4. Table 1.1 shows the information of following three items regarding nine companies: (1) how many countries they invested in (2) the number of foreign companies categorized by manufacturing, marketing and/or engineering, and (3) which country of subsidiaries the author visited after April, 2011. Introduction 3

Table 1.1 Overview of FDI activities in case study companies Number of Number of Countries Foreign Country Visited by the Invested Subsidiaries Author after April 2011 Denso Corp 33 97 Indonesia, Vietnam Furukawa Electric 25 102 Taiwan, India, Indonesia, Singapore, Thailand, Vietnam Hamamatsu Photonics 8 12 China Kanefusa Corp. 7 8 Indonesia Komatsu Ltd. 21 64 China Mabuchi Motor 8 18 Vietnam Yamaha Motor 29 94 Taiwan, India, Thailand YKK Corp. 70 90 Tunisia, Vietnam Yokogawa Electric 56 69 Indonesia, Singapore

In global marketing, the acronym BRIC stands for Brazil, Russia, India, and China. BRICS includes the same four countries and adds South Africa. In Chap. 5 the prospective markets in the world are discussed. Generally speaking, BRICS are emerging markets, followed by VISTAS (Vietnam, Indonesia, South Africa, Turkey, Argentina, Sri Lanka) (The Goldman Sachs Group, Inc. 2000), and CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa) (Wharton School 2001), while VIP is limited to Asian markets (Vietnam, Indonesia, and Philippines) (Nikkei Inc. 2002) countries as well. Taken together, the groups represented by these four acronyms encompass 14 countries, ones regarded by multinational enterprises as prospective world markets. They are Argentina, Brazil, China, Colombia, Egypt, India, Indonesia, Philippines, Russia, South Africa, Sri Lanka, Thailand, Turkey, and Vietnam. MNEs try to prioritize among them and act on their FDI accordingly. In principle, priority lies where business interests exist. The majority of responsible executives for international businesses in the nine companies examined here did not point to FDI in African countries. The author, however selected Kenya, Nigeria, and South Africa as prospective markets geographically and economically and describes them in detail. Furthermore, in Asia, Indonesia, Sri Lanka, and Vietnam are selected. Sri Lanka is a rather small country compared with other Asian countries, but it is rich in its human resources. 4 K. Yamazaki

In Chap. 6, the author attempts to abstract the golden rules of corporate global strategy. Such rules may not as yet exist, except conceptually. Following on the analysis of Chap. 2, the strength of the Japanese management style is contrasted with that of companies in the U.S. and Europe in Chap. 3. In Chap. 4, the interviews and answers for questionnaire, and research visits might lead to another ideas and priorities in relation to the global strategy. Chapter 5 indicates or suggests foreign direct investment for MNEs from a global marketing perspective. By putting all these notions together in one basket, I hope some new ideas might emerge.

Japanese Global Marketing and Strategy

Regarding world markets, Japanese MNEs prioritize Asian and African markets over those in Latin America or Europe among the 14 emerging countries mentioned above. Asia is chosen because it’s closer to Japan. The thoughtful management style of Japanese MNEs sometimes requires face to face discussion, so distance is a key factor. There is no doubt that the continent of Africa will be an outstanding market and will remain the largest market as a whole. In fact, Japanese MNEs have considered Africa to be an important market, but have not been able to make foreign direct investments there. They believe now is the time to do so. As I noted in Japanese Global Management, the key to success consists of capabilities in operational management, integrating marketing, and interactive communication. In the case of foreign operations, the combi- nation has proven correct so far. Regarding Japanese global strategy, the characteristics of MNEs are summarized as ‘compact, speedy, and thoughtful’ (CST) management. The author originally encountered CST at the overseas operations of the nine companies. In Chap. 2, changes in global business environment are explained; Japanese management changes some points while leaving others unchanged. Even if CST was originally created in foreign subsidiaries, it might influence the home headquarters’ operation and vice versa. In the end CST seems to be a fundamental character of Japanese global strategy. Introduction 5

References and Notes 1) Abo, Tetsuo et al. (1994). Hybrid Factories in the United States, Oxford University Press. Referring to the hybrid theory for the practical research works as follows. Yamazaki, Katsuo et al. (ed.) (2013). Hybrid Factories in Latin America: Japanese Management Transferred, and Kumon, Hiroshi and Abo, Tetsuo (ed.) (2004). The Hybrid Factory in Europe: The Japanese Management and Production System Transferred. Both are published by Palgrave Macmillan. Furthermore, in relation to the hybrid theory, JMNESG stands for Japanese Multinational Enterprises Study Group, which was established in 1983. 2) The Goldman Sachs Group, Inc. (2000). The word ‘VISTAS’ represents Vietnam, Indonesia, South Africa, Thailand or Turkey, Argentina, and Sri Lanka. The constructs of BRICS and VISTAS were suggested by Goldman at the beginning in 2000 on the company’s report. 3) Nikkei Inc. (2002). ‘VIP’ represents Vietnam, Indonesia, and Philippines, and the word appeared in the company’s newspaper in 2002. 4) University of Pennsylvania. Wharton School (2001). ‘CIVET’ represents Colombia, Indonesia, Vietnam, Egypt, and Turkey. The word was used originally at Wharton School in 2001. 6 K. Yamazaki

Appendix 1

Glossary of Japanese-origin Words Chapter Word Explanation 1 2 3 4 5 6 Dantotsu A short form of ‘danzentoppu,’ meaning the x condition that is far and away the most or best; unique and unrivaled. Densoism A composite word of ‘Denso’ and ‘ism’; the x traditional policy, thought, and credo at Denso. Dojo Originally an exercise hall for Japanese x martial arts; a gymnasium. Eruboshi The letter L is pronounced ‘eru’ in Japanese, x which stands for ‘lady.’ The ‘boshi’ is a voiced consonant of ‘hoshi’ (star). Genba The actual job site or the workshop in x reality; one of the 5Gs, that is, the five first-letter-of-G words. Genbutsu The actual thing or spot goods, material in x reality, one of the 5Gs, that is, the five first-letter-of-G words. Genchi On the spot or the site in reality; one of the x 5Gs, that is, the five first-letter-of-words. Genjitsu Actuality or occasion in reality; one of the x 5Gs, that is, the five first-letter-of-G words. Genjyo Present situation or situation in reality; one x of the 5Gs, that is, the five first-letter-of-G words. Gogenshugi A composite word of ‘gogen,’ (five ‘gen’ x words starting with G in Japanese) and ‘shugi’ (ism). Hito-zukuri A composite word of ‘hito’ (human) and x ‘zukuri’ (nurturing), that is, the human face of training excellent employees. Ikkonagashi One lot flow; a composite word of ‘ikko’ x (one) and ’nagashi’ (operation in flow). Jimini Inconspicuously, quietly, in a withdrawn x way. Jimichini Steadily, honestly, straight, fairly, soberly, x step by step, in an honest way. Jicchokuni Faithfully, sincerely, honestly, reliably. x Jikoteikanketsu A composite word of ‘jikotei,’ (one’s own x process) and ‘kanketsu’ (completion); the idea that one has ownership of whatever process one is engaged in. (continued) Introduction 7

(continued) Glossary of Japanese-origin Words Chapter Word Explanation 1 2 3 4 5 6 Jinki kannou Literally, a composite word of ‘jinki’ (mood) x and ‘kannou’ (sense); two kinds of sensual communication between human and machine at Yamaha. Kaizen A continuous improvement; it has already been used commonly in the business world. Kaizen activities done as a group periodically are thought to be one of the characteristics of a Japanese management system. Keiretsu An enterprise group with linked capital; a x x (corporate) group; a keiretsu (group); an interlocking corporate grouping. Kikenyochi A composite word of ‘kiken’ (danger) and x ‘yochi’ or (foreseeing); kiken is one of the 3Ks, that is, the three first-letter-of-K words. Kikubari Vigilant and careful attention, literarily, but x in the Japanese sense of ‘kikubari,’to pay more attention to the person, think of each from the place where they stand. Kitanai Dirty or unclean; one of the 3Ks, that is, the x three first-letter-of-K words. Kitsui Hard or demanding; one of the 3Ks, that is, x the three first-letter-of-K words. Koh Koh stands for kohseki, meaning x achievement. Kousen A five-year senior school of technology in x Japan; a composite word of ‘kotousenmon,’ (high and special) and ‘gakko’ (school). Mono A thing, product, or service to be supplied or x served. Monozukuri A part of the total management system that x x x x x x was established and cultivated after World War II. Monozukuri A strategy centered on systematic x x strategy manufacturing flow and human resource cultivation. Nenkoh A composite word of ‘nen’ (age) and ‘koh’ x (work result). (continued) 8 K. Yamazaki

(continued) Glossary of Japanese-origin Words Chapter Word Explanation 1 2 3 4 5 6 Omotenashi Literally to be received warmly or cordially x and be welcome in the manner of ‘kikubari’ from the place where the person stands. Sahou Manners; (rules of) etiquette; conventions in x regard to behavior. Seiri (Re)arrangement; (re)adjustment; putting in x order; one of the 5Ss, that is, the five first-letter-of-S words concerning the foundation of a factory. Seiton Proper arrangement; putting [set] to rights; x arranging properly; one of the 5Ss, that is, the five first-letter-of-S words concerning the foundation of a factory. Seiso A cleanup; one of the 5Ss, that is, the five x first-letter-of-S words concerning the foundation of a factory. Seiketsu Cleanliness, cleanness, hygiene, purity; one x of the 5Ss, that is, the five first-letter-of-S words concerning the foundation of a factory. Shitsuke Discipline, upbringing; one of the 5Ss, that x is, the five first-letter-of-S words concerning the foundation of a factory. Sogohshosha A general trading company; although the x word is originally a Japanese word, it became an English one because it is not common for the type of trading company in other places. It is found in M. Czinkota, I. Ronkainen, and M. Moffett, International Business, The Dryden Press, 1992, p414. Soshikizukuri A composite word of ‘soshiki’ (organization) x and ‘zukuri’ (voiced consonant of ‘tsukuri,’ for forming effectively). Takuminomori A composite word of ‘takumi,’ (craftsman) x and ‘mori’ (forest); literally, the forest of experts. Takuminowaza Very high end of craftsmanship. x x Tennoism A composite word of ‘tenno’ (emperor) and x ism. Tsukurikomu A composite word of ‘tsukuri’ x (manufacturing) and ‘komu’ (work from the bottom of one’s heart). Introduction 9

Appendix 2 September 22, 2015 Mitsuyoshi Shibata President & COO Furukawa Electric Co., Ltd. (FEC) Katsuo Yamazaki Re: Questionnaire for FEC’s management and strategy

1. Your policy presented in FEC home page (HP): (1) You inform the basic corporate policy, action principle, and vision in the pages of “FEC Group Doctrine,” but you do not mention the domain. It is better to put the company’s area of business activity on the HP. As you know, IBM’s domain is, “IBM means service.” In Japan, Yamaha Motor Co. appeals to the public: “Yamaha Motor means creating sensation.” Your comments on this are appreciated. (2) ‘Message from the President’ in Japanese tells us, “The business areas are expanding to information and communication, electronics, new material, and an automotive component, in response to age needs; the company with more than 100 related corporations as a group propel those business areas in the world.” I think a more exciting HP is desirable for viewers to know what the company is like and the corporate strategy. Please give me a comment. On the English HP, “Material that supports safety, technology to create peace of mind,” “Supporting infrastructure brightening the world,” “Proposal leading to the next step development with an eye on the future,” Products that bring the world closer to you, imple- mentation that makes life enjoyable.” All these flash on the screen 2. After reading Furukawa Electric Group Sustainability Report 2015 (SUSR2015) and the Financial Report 2015 (from April 2014 to March 2015), I would like to ask the following questions regarding the corporate strategy: (1) Please let me know the forecast in sales up to 2020 at five business units, that is, ‘Information and Communication,’ ‘Energy and 10 K. Yamazaki

Industrial Material,’ ‘Electric and Electronics Components,’ ‘Copper Metal Products,’ and ‘Service, Development & Others.’ I would like to know a ballpark figure whether the units are going to grow. (2) I understand that the overseas sales amount was 44.4% against the total in fiscal year 2014. How much do you intend to increase the percentage as a strategy? (3) Growth always requires enormous expenditure. Which business units do you emphasize? (4) How do you decide on the expanding directions in response to needs and seeds in five business units? Is the ‘Supreme Management Meeting’ consisting of presidents, heads of business units decisive? (5) On page 106 in Financial Paper 2015, the section ‘New Product Research Development’ is in the ‘Service, Development & Others’ Unit. Does this mean the new products were produced and sold to the market before transferring the business to four other appropriate business units? And what was the sales amount of that business in financial year 2014? 3. Strategy and organization: On Page 21, SUSR2015, the chart of governance organization is found. I would like to ask the following regarding the business execution function (1) As business proceeds, does is every dotted line head responsible for the profit but controlled by the above executive directors? (2) Will the heads that are not surrounded by dotted lines, for example, the Automotive Components head, report to the president and/or chairman directly? (3) Does the phrase, ‘sales and marketing activity development’ indicate both ‘Sales/Marketing Business Unit’ and ‘Global Business Promotion Unit’? (4) What is the relation between both business units mentioned in the #2(4) above and the product line units? Do the former insert the latter organization as a horizontal split? If the latter contains a sales section, does the former function only as a support? (5) How many proper staff does ‘Global, group strategy initiative’ have? And what is the relation between this organization and the above two units mentioned in #3(3)? Introduction 11

(6) Who is in the One F Automotive Business Team in the strategy division? And what does it result so far? Do you intend to expand this team to other industrial businesses in the company? (7) What ‘Secretary Office’ belongs under corporate strategy division seems to be unique in most large corporations in Japan. What is the function of the secretary office in the strategy division? 4. Global corporate strategy: (1) Regarding global corporate strategy, do you request the heads of products line to make a long-term plan (say 5 or more years), and a middle-term plan (3 years or so)? Or do you make a plan by yourself in reference to ‘Global, group strategy initiative’ and ‘Global Business Promotion Unit’? (2) As for overseas mergers and acquisitions (M&A), will you and your assigned special staff take care of the whole procedure successfully? Or by the written rule or procedure (PDCA) could the responsible executive proceed with your consultation in a timely way? (3) Who has the assignment right of head for overseas permanent establishment? May I understand you have the right to assign personnel after discussion among the related heads of divisions with you? (4) How do you think your human resources are prepared as required for enacting global corporate strategy? Please mark multiple choices if necessary. (a) Many personnel are prepared to execute strategy, and no anxi- ety exists. (b) Not sufficient for human resources, but it is not an urgent issue. (c) Having perceived it is not sufficient; the instruction to improve situation has been made. (d) There exists a development method in the company, and it has been executed. Therefore, no problems are seen for the middle- and long-term plan. (e) As for hiring global human resources, it looks as if there is no problem, either in Japan or in overseas offices. (f) When it becomes necessary, head hunting in Japan or foreign countries is an alternative. 12 K. Yamazaki

5. Human resource development In relation to the development of global human resources on pages 38 and 39 of SUSR2015, I would like to ask as the following: (1) In the whole development system of global human resources, how many associates had been developed by GBL program up to 2012? Why did GBL shift to GMP program? (2) As for GMP, GDP, and GCP, are these programs only for local associates? Are the programs as a whole executed in foreign countries? Is there any training in Japan? (3) ‘FEC expatriate’ seems to be separate. Does he take a training after his appointment is made? (4) Only in the column of ‘FEC expatriate’ are ‘Overseas Operation,’ ‘Teamwork Improvement,’ and ‘Workshop’ in the circle. Please explain what this means as a chart of human resource development. 6. Corporate policy in the future (1) Please indicate the target of ratio of operating profit to net sales. And Return on Equity (ROE). (2) In addition to the opinion of head of global business promotion unit, I would like to ask you a marketing strategy. Which area will you expand into for the business? Please mark a circle the item. (2-1) No ideas for areas and regions specifically. (2-2) Which areas are you interested in? Please mark multiple choices if necessary. (a) India (b) Asia including China (c) Europe (d) Latin America (e) North America, including Mexico (f) Northern Africa (g) African Continent except Northern Africa (h) Oceania (i) Russia (3) Research and Development Policy After Tatsuo Teratani was recruited as a director from outside the company, synchronizing a business plan and research development in the field of automotive components business seems to be effective. In other fields how do you make a decision and execute R & D? Introduction 13

Appendix 3 September 22, 2015 Hiroyuki Ohtake Senior Managing Director General Manager Global Business Strategic Initiative Furukawa Electric Co., Ltd. (FEC) Katsuo Yamazaki Re: Questionnaire for global marketing and overseas operations

1. I have learned that you have promoted all global businesses at FEC except the business unit of the automotive component division, which practically deals with Furukawa Automotive System (FAS), a FEC subsidiary by 100% ownership. The following is questioned based on this assumption. 2. Is my understanding of your span of execution and duties correct in the above? How often do you reconcile policies and strategies with some manufacturing divisions of FEC Products? 3. Please inform me which areas you would intend to enter into and/or strengthen when you review the overseas markets at FEC in view of global strategy:

Areas for strategical global markets Please mark ✓ in the proper item. No problem for plural answers. ✓ mark column アジア Pan-Asian countries Asia except China and India East Asia including China, South Korea, and Taiwan South East Asia including AEC-10 China India Sri Lanka Pakistan Any specific country ( ) 14 K. Yamazaki

Areas for strategical global markets Middle East Pan-Middle East Middle East except Egypt and Turkey Middle East except Iran and Iraq Egypt Turkey Iran Iraq Any specific country ( ) Europe Pan-Europe Euro Continent except North Europe-3 East Europe Central and Eastern Europe North Europe United Kingdom Ireland Iceland Any specific country ( ) Russia Pan-Russia West Russia including Moscow Central Russia East Russia North America United States Canada Mexico Central America Pan-Central America Any specific country ( ) South America Pan-South America South America except Mercosur-5 Mercosur-5 Brazil Argentina Any specific country ( ) Africa Pan-African Continent North African Continent Africa except Northern Africa South Africa Nigeria Kenya Any specific country ( ) Oceania Australia New Zealand Any specific country ( ) Introduction 15

4. Are the following functions included in your scope of work? (1) Function of marketing strategy: Market and sales information, and investment and country risk information. (2) Function of human resource strategy: Optimal human resource allocation in the overseas operations and in the domestic sales division (3) Function of operational assistance overseas: Response if overseas operations request necessary assistance. 5. Is the business unit (Global Business Strategic Initiative) responsible for profits at FEC as the profit center? If so, how is the business unit reflected in FEC’s income statement? Or, the internal evaluation of objectives and the results? 6. Is the method of management control same in all overseas sales operations? Do you indicate the long-term, say, 5-year business plan to overseas subsidiaries? Or, the plan shall be completed through reconciling each other? 7. How much is the business unit’s sales amount including the triangle trade business? If there is a triangle business, what is the ratio of the total sales amount? 8. Are the responsible persons at overseas operations limited to the span of your control of local persons or foreigners? Please let me know the ratio between foreigners and FEC’s expatriates. 9. How do you communicate with the responsible persons at the overseas related companies? Do they report a paper in English monthly or weekly? Do you use a phone conference and/or TV conference, and/ or periodical (say, biyearly) meeting at one place? Or do you visit them frequently? 2

The Process of Monozukuri in Global Business Environments

Japanese Economy and Global Management to 1945

As economics includes the science of management, there is a degree to which corporation management exists in an economics environment. To a greater extent, corporate management is influenced by the world economy and political situations. In Japan, the economy seemed to take off between 1878 and 1900, according to W.W. Rostow in The Stages of Economic Growth (Rostow 1960). The Japanese economy, however, had grown domestically up to World War I, and was limited to certain international trades by exporting primary goods such as silk, tea and gold and importing industrial goods such as electrical appliances and generators in addition to a few primary goods such as cotton, iron ores and others. It was said in 1913 that Japan accounted for less than 1% of industrial production in the world, while the USA accounted for 35.8%, Germany 15.7%, the UK 14.0%, France 6.4%, Russia 5.5%, and Italy 2.7% (OECD 2016). Japanese manufacturing companies were small and mid- sized in 1913, and there were no large mass production lines. Out of the nine companies used as case studies in this book, Furukawa Electric Co.,

Ltd. and Kanefusa Corporation were in production as far back as 1913. Techniques for production seemed to be transmitted individually, rather than through company organization. That is, employees progressed to achieve a level of fine workmanship by serving a strict and long apprenticeship. Japanese companies did not engage in outstanding foreign direct investment (FDI) during this era, either in China or the United States, except for one form of FDI by a type of trading company called sogohshosha (Czinkota 1992). The South Manchuria Railway Co., Ltd. is one of the good examples for Japanese FDI during this era. It was established in 1906, but by the Japanese government, not the company itself. According to Mira Wilkins in The History of Foreign Investment in the United States to 1914 (Wilkins 1989), Mitsui & Co. established the wholly owned Southern Products Company in Houston, Texas, in 1911. The company was responsible for more than 30% of US raw cotton imported into Japan, becoming the leader in Japanese raw silk exports in 1910s. After World War I, when the US economy assumed the position of world leader in production, Japan progressed under an empirical system called tennoism, developing its national prosperity and military strength. As time went on, the military used its power to intervene in the market, strengthening industries under a controlled economy. Once a company was designated as promising, especially in the manufacture of products related to the military, raw material was allocated and distributed to companies by the government. In this process of development, some of the allotted companies had grown to large-scale corporations and could then organize a production department at the center of a certain management system. As to Japanese FDI in 1914, according to The History of Foreign Investment in the United States 1914 to 1945, Japan was neither a principal source nor a principal recipient of capital in July of that year; Japan directly invested only 3 million USD against 1684 million USD total direct investment by the United States (Wilkins 1989). About 24 years later, Japan had invested 1.2 billion USD in China, compared with the UK 22.9, USA 11.5, Netherland 4.8, France 3.9, Canada 1.9, Switzerland 1.6, and Belgium 1.3 billion USD. Especially in the USA, Japan’s FDI had amounted to 41 million USD, while there was only 7 million USD The Process of Monozukuri in Global Business… 19 in other countries. In addition to Mitsui & Co. and other trading companies, Sumitomo Bank, Osaka and Yokohama Specie Bank, Yokohama completed investment before 1929 (Wilkins 2001). The exchange rate was fixed at 3.5 Japanese yen per US dollar in 1935 and after.

Japan’s Economic Recovery after World War II to the 1970s

Let’s look at the foreign exchange rate in Japan after World War II. First, the ‘New Yen’ monetary system began in 1946. Then, a fixed exchange rate system was introduced in 1949 that was set at 360 JY against 1 USD. During the Korean War (1950–53), Japan’s economy made great strides because of the special overseas demand for ammunition. In international trade, the country was importing raw materials and exporting manufactured goods in addition to food importation, especially of rice. For many years up to the 1970s, rice was the staple diet of a large majority of Japanese. In lean years for the rice crop, Japan had to import a quantity of rice, which caused its foreign trade deficit. Consequently, the foreign exchange reserve amounted to 2 billion USD at the end of 1967. That was a milestone low in Japan’s foreign exchange reserve history; since then the reserve amount has increased at a constant rate of 1 billion USD per year. As the economy continued growing rapidly despite several recessions, there resulted a huge surplus in the balance of payments. Because of this, the currency system was changed to a floating exchange rate system in August of 1971. The pressure to buy yen was so strong that the government was forced to return to a fixed exchange rate system of 208 yen per a dollar in December of that year. However, in February 1973 it went back to a floating system, which kept working properly. After the World War II, the economy was in the midst of reconstruc- tion. William Edwards Deming (1900–1993), an American statistics scholar, was invited to Japan by the Union of Japanese Scientists and Engineers (JUSE) on July 15, 1950. Upon his visit, he lectured at the “Eight-Day Course on Quality Control” at the Auditorium of the Japan Medical Association, in Tokyo. This was followed by his “One-Day Course on Quality Control for Top Management,” held in Hakone, 20 K. Yamazaki

Kanagawa prefecture (Walton 1986). Through these seminars, Deming emphasized the importance of the basics of statistical quality control (SQC) to executives, managers, engineers, and researchers of Japanese industry. His lectures made a deep impression on the participants and provided great impetus to the pursuit of quality control in Japan, then in its infancy. The consensus is that Deming made a brilliant contribution to postwar Japan in the development and advancement of SQC as a company practice. To honor the statistician, the Deming Prize was established in 1951 by JUSE and was awarded to companies judged to be adept at using the new- found statistical tools of SQC in 1950s. Japanese firms, however, began to move beyond a narrow application of SQC, so quality evolved into an all- encompassing approach consistent with Deming’s Fourteen Points (Walton 1986), which the Japanese called ‘Total Quality Control (TQC)’ in the 1970s. In his lecture “What Is Total Quality Control? The Japanese Way,” given at Furukawa Electric Co., Ltd. on 18 July 1982, Kaoru Ishikawa (1915–1989) said, “Quality means quality of work, quality of service, quality of information, quality of process, quality of division, quality of people, including workers, engineers, managers and executives, quality of company, quality of objectives.” Later, in 1980s the concept of TQC was con- tinually upgraded from quality control in a single department to one at the whole management level; this has been called ‘Total Quality Management (TQM)’ in Japan. In any case, without Deming’s great contribution to Japan’s introduction of SQC after the Second World War, Japan’s high level of product quality would not have been realized and recognized. James Abegglen (1926–2007) researched Japanese management style and strategy from 1954 to 1955 under a Ford Foundation grant; he looked at 19 large factories and 34 factories of small and medium-sized companies (SMCs) in Japan. It was important and interesting that he extended his research with minute observation and in-depth analysis from work organization and administration to productivity and labor relations. Significantly, the historical background in which Abegglen carried out his research was profoundly different from the present in terms of the social situation and environment in Japan. Abegglen pointed out the absence of firsthand and systematic information for researchers working on problems of industrialization, and that The Process of Monozukuri in Global Business… 21 few survey techniques had been developed in Japan’s academic world, and there was only very limited industry-university cooperation (Abegglen 1958). In this light, his research can be considered meaningful, as shown by how the Japanese production system existed in an organization and how it achieved remarkable results thanks to Japanese monozukuri, as discussed in the chapters that follow. The 19 large companies researched consisted of two factories for each categorized industry such as chemicals, steel, machinery, electrical equipment, mining, wire and cable manufacture, shipbuilding, and one factory each for aluminum and radio communications equipment in addition to three textiles factories. Most of the 34 SMCs produced textile-related items as well as some chemicals, and items for electrical equipment and metal-processing plants. The number of employees in the large companies varied from 2000 to 8000, and in SMC there were less than 200, and in many only 8 to 20 employees (Abegglen 1958). He concluded that factory organization, in general, seemed to have experienced a consistent and logical growth from the kinds of relations existing in Japan prior to industrialization. Changes took place in Japan from 1920s through 1950s; before the changes, organizations developed in harmony with historical customs and attitudes of the Japanese and also with the social system, which caused a parallel development in the factory. Especially in the large factory, a parallel was noticeable between the factory system and the clan or kinship organization. It consisted of two parts: the quasi-parent/child relation was modeled with hierarchical roles of informal organization, and the boss/subordinate relation superim- posed on the former relation in a formal structure (Abegglen 1958). He noticed the classification of employees into white-collar and blue- collar such as those in the United States, but found that even primary and middle school graduates could be promoted to line manager in the factory. On the other hand, nepotism was still a factor in the employment system of the Japanese factory. Employment was carefully conducted and procedures within each company were well defined. The reasons for were that the system of recruitment was part of and reinforcement to the effects of the basic system of worker/firm relationships, and that the matter of pay and reward, career patterns and promotion opportunity, and interchange of obligations and responsibilities between employee 22 K. Yamazaki and firm had to be understood against the background of employee recruitment (Abegglen 1958). Generally speaking, the characteristics of the Japanese management system might be: (1) a wage system by seniority; (2) a lifetime commitment or employment system; and (3) an in-company labor union. The question was whether these features were preserved in Japan and could they be found by Abegglen in Japanese corporations. Regarding (2), he found that “once admitted into employment, employees of Japanese firms will not be fired on grounds of lack of ability” (Abegglen 1958). Other features were not mentioned by him. Neither did he mention the blue-collar, job classification, multifunctional skills, education and training, wage system, promotion, and function of first-line supervisor.

Basis of Japanese Global Management in the 1980s

Kazuo Koike, then Professor of Human Resource Management at Hosei University in Japan, wrote about Japanese company organization and the shop floors of Japanese companies in the United States, Thailand, and Malaysia based on his research. Here one sees how Japanese companies worked well in Japan and how they expanded their production to foreign countries in 1980s. First of all, on-the-job training (OJT) used to be unique to Japanese production workshops. However, OJT is now common in large US steel companies. How Japanese OJT differs from that in other countries is the way it is executed broadly in all sections in the company. How broadly OJT works exemplifies a different aspect: Most blue-collar workers enter workshops without skills and depend on shop OJT for skill formation. Before receiving OJT, the workers take about one or two weeks of off- the-job training. In Japanese workshops, workstation rotation is conducted regularly in three ways: (a) it is broad in scope; (b) it is superficial in an egalitarian way; and (3) it is based on shop floor practices. This frequent rotation allows a multi-skilled worker to advance to shop-floor leader with a managerial skill. The Process of Monozukuri in Global Business… 23

Koike observed how this OJT—or Japanese conventional wisdom of Japanese management—works effectively. In Japan, skill formation is conducted intensively by OJT. He also observed the same kind of OJT in US workshops, although his visits were limited in number. He concluded that direct comparisons needed to be attempted among Japanese companies in foreign countries, in local companies owned by native people, and in home companies in Japan (Koike 1995). He pointed out that the strength of the Japanese production system was “intellectual skill,” which entails versatility with changes in output at the shop floor, changes in workforce composition, and production method. Furthermore, versatility helps workshops properly handle and confront problems such as mechanical failure and defective products. The steps to solve such problems are sometimes executed through ‘Quality Control (QC) circle’ activity. Therefore, the skill is brought by an individual worker and the organization he belongs to at the shop floor (Koike 1995). Koike explained the seniority wage system as one based on a cost of living guarantee for employees. In other words, wages are paid according to age to offset the changing costs throughout stages of life. In addition, the skills with which an employee performs certain jobs increase with their age and length of service. Management believed skills to correspond to length of service and age (Koike 1995). The system supports a proposi- tion that is unique to Japan and that does not vary across most of the corporations. Proper OJT for multi-skilled workers is essential for them to perform certain jobs successfully; this is part of Japanese company tradition. In this sense OJT and rotation with multiskill training are a united on the shop floor. If a corporation is willing to take care of employees throughout life till retirement age, the workers will reciprocate with devoted work. Koike does not mention the appraisal or evaluation process of this wage system, but this also works as an important function for even blue- collar workers in the Japanese wage system. On the contrary, in foreign companies appraisal is generally part of the process between a boss and subordinate for exempt employees only. The appraisal process in Japanese companies holds twice a year at many levels of management precisely and thoroughly. One appraisal is performed before a scheduled bonus payment, and another before an annual pay increment is determined. All 24 K. Yamazaki appraisals affect the employee wage or salary annually as well as the bonus at the time. The Japanese seniority wage system is called the Nenkoh system. Nen means age and koh for contribution to the company that reflects the appraisal result. That is why the Japanese seniority wage system takes into account age, length of service, and contribution to the company. Japanese companies hire personnel periodically, usually on a schedule, in April, rather than year-round recruitment, a practice that is often popular in Western countries. Therefore, the wage and salary system in Japan suits the individual career needs of high school graduates, undergradu- ates, and higher education candidates. As they enter a company with a ‘permanent’ employment new hires do not sign a contract because a tacit understanding of permanence exists between employers and employees. Even though it is called ‘permanent,’ the system has a mandatory retirement age (55 for men and 50 for women in 1980s) and even dismissals. Workers express their feelings or discontent through their labor union. In-company labor unions are common in Japan, but they are usually sweetheart unions, meaning the workers have little power to resist management and have little say to the management. Japanese unions are thus regarded less independent than European or North American unions. Yet strikes occur in Japan at about the average rate each year, according to ILO Yearbook of Labor Statistics (Koike 1995). Union leaders in most Japanese companies are elected from among company employees during labor meetings. After the full-time union officials complete their union duties for several years, they in general return to their original work place. Each union has, in general, a full- time union official and a part-timer who has a different role to play compared to other employees. The salary or wage of the full-time official is paid from union dues, but part-timers are paid by the company. Regarding bonuses, the former is paid from the company like a worker on loan temporarily assigned from another company. Union dues are deducted from the salary of the company employees. Taking these facts together, we may say Japanese labor unions are not independent of the company and their members are good collaborators with the management. The Process of Monozukuri in Global Business… 25

Japanese Foreign Direct Investment in the 1980s: Monozukuri Strategy

Japanese foreign direct investment increased gradually in Southeast Asian countries in the 1970s, followed by rapid increments of FDI in developed countries such as UK and USA in the 1980s. John H. Dunning, writing in Japanese Participation in British Industry, noted that only 24 companies invested in industries mainly classified as ‘secondary’ such as electric, chemical, and light engineering industries, while 389 Japanese companies invested in a tertiary industry in the UK in 1983 (Dunning 1986). He analyzed 24 companies using 24 questionnaire items regarding competitive ownership advantages in the management of affiliates. The companies were asked to indicate each variable on a scale 1–5, with 1 indicating ‘no significance’ and ‘5’ greatest significance. The first 16 questions were related to advantages based on privileged possession of particular assets: (a) product-related variables and (b) production-related variables. The second 8 items were related to common governance (trans- action cost minimizing) advantages. From the results he concluded as the following: (1) In the case of Japanese electric and chemical companies, managers believed these advantages could be better transferred to the UK within their organization rather than through licensing arrangements with UK firms. The UK was chosen over the European Continent seemed to be for reasons of the former’s language and culture. (2) In the case of light engineering companies, differences in production and transport costs rather than any artificial barriers imposed by the governments caused UK to be preferred for FDI over Japan or other European bases. (3) In all sectors it would seem the tendency to establish European bases is increasing, and because of the improvement in its competitive position, the UK is in a particularly good position to attract further participation by Japanese MNEs (Dunning 1986). In addition, Dunning asked the same 24 companies 12 questions concerning the extent to which the main functional areas of management are affected by Japanese business techniques and philosophy, and to what extent Japanese parent companies control or influence decision-making in their UK manufacturing affiliates. After his survey, he concluded that 26 K. Yamazaki

Japanese affiliates in the UK did not practice a single management style. Neither was it possible to generalize about Japanese influence on the product or production strategy of these affiliates. Furthermore, the extent of Japanese involvement in the decision-making process seemed to depend on (a) the availability and quality of local technical competence and (b) the extent to which it was possible to exploit economies of synergy between the affiliate and the rest of the organization (Dunning 1986). In his comments of OJT and rotation, Koike found that work flexibility was needed in the Japanese business context, including perhaps not only assigning a different job to a worker in the same factory but a job in a different factory of the same company. Moreover, demarcation by craft or seniority tended to be discouraged because of the stress Japanese companies placed on flexible manufacturing systems—even those in the UK—and the smaller size of factories and lesser reliability of suppliers compared with factories in Japan. As for recruitment policy, most Japanese-British companies recruited directly from school leavers as their parent companies in Japan did, based on the philosophy of lifetime employment (Dunning 2001). Duane Kujawa, then a professor at the University of Miami (Florida), undertook research on management and labor interface in the context of the foreign direct investors in the USA, especially those of Japanese American companies. He wrote about it in Japanese Multinationals in the United States. His research centered on a result of the 24 case study onsite MNEs, each conducted from February 1980 through March 1981. These 24 companies were categorized into three major groups: nine Japanese-owned, six non-Japanese foreign-owned, and the nine US -owned. At the time, orderly marketing arrangements (OMAs), by which an exporting country agrees to limit exports, were negotiated and concluded between the USA and Japan so as to ease trade friction. Japanese FDI in the USA coped with difficulties under politically-defined trade barriers such as tariffs, local content legislation, and/or OMAs. Moreover, employment in 1980 grew by 259% at each of the Japanese subsidiaries compared with 1975’s growth, ranging from a low of 21% to high of 376% growth. The average employment growth in takeover cases exceeded that of the start-up or grass-roots investments (Kujawa 1986). The Process of Monozukuri in Global Business… 27

Kujawa noticed that at the Japanese firms, technology transfer and maintenance were accomplished mainly via line organization. Personnel and industrial relations in organizational structures were more developed as staff functions at the foreign-owned firms than at the Japanese firms. Regarding the training for clerical and warehouse employees, all was handing with on-the-job training. For managerial and technical personnel, training was effected through product-specific OJT. Training at the Japanese-owned case-study companies was apparently extensive and mainly OJT. Training for the individual worker occurred at the time of employment and during the introduction of new products and equipment. Furthermore, technical specialists at the parent company were employed on-site for training and workforce development purposes. US production workers did not commonly get sent to the parent company in Japan for training; only 20% belonged to this group in the time of the study (Kujawa 1986). Regarding wages/salaries and job classification systems, major differences appeared between the unionized Japanese subsidiaries and nonunionized ones. The unionized firms taken over by Japanese-owned firms had a many job categories and more specifically defined job assignments. The group of firms implementing Japanese management philosophies typically favored broad job categories and flexibility in personnel assignments. Three of nine were unionized, and the two of the three unionized Japanese subsidiaries remained unchanged as existing firms with established union-management relations. The third firm was organized subsequent to plant start-up, and this firm expressed no desire to change that relationship, but it preferred to have a non-unionized new plant in order to make it easier to innovate (Kujawa 1986). Generally speaking, wages paid at the Japanese firms were found to be at the lower end of the typical range identified by all 24 companies. This was the situation for both unionized and nonunionized groups. Since none of the Japanese American firms noted any problems regarding employee recruitment and retention, the wages they paid appeared to have been satisfactory. On the other hand, overall benefits at the Japanese, foreign, and US-owned firms were more or less on the same level (Kujawa 1986). 28 K. Yamazaki

Kujawa concluded that the data strongly supported the companies’ choice of business site because it did not invite union-related issues. This was not to say the Japanese companies were indifferent to the unionization of existing facilities. On the contrary, personnel policies at Japanese American companies were locally established and not affected by the Japanese parent companies, but reflected any directives emanating from them. In addition, Japanese expatriate management at the subsidiary level participated to varying degrees in establishing and implementing specific personnel practices as they exist in Japan. Furthermore, six of nine Japanese firms reported they were operating pretty well in 1980. One success was attributable to the report that their US workers were competitive in terms of productivity (Kujawa 1986). Kujawa’s analysis of management transfer by the companies under survey corresponded, to some extent, to the hybrid theory that is explained in the next chapter. As the Japanese economy grew, experiencing cyclical temporal recessions in the 1990s, the country’s FDI increase during that decade was much more dramatic than it was in 1970s. Compared with companies in the USA, the UK, and Germany, Japanese firms have invested steadily in foreign markets. This demonstrates that once a Japanese firm decides on its FDI, withdrawing the overseas fund is always the last resort. Consequently, the accumulated amount of Japan’s FDI has increased on average every five years. Even for FDI in 1980s, management in the sense of monozukuri was introduced in Japanese foreign subsidiaries. Monozukuri is a composite word of mono for ‘things’ and zukuri for ‘making.’ So, while it literally means ‘production’ or ‘manufacturing,’ it has a more refined meaning. Experts say intensive monozukuri is the act of tsukurikomu—to craft things by making free use of art, science, and skill. The word denotes, to the author’s best knowledge, a process by which high quality products are manufactured in a perfect manner, much like takuminowaza means craftsmanship (JETRO 2016). Monozukuri has been used quite often since the beginning of the twenty-first century. As developing countries such as the BRICS entered the global market and played an important role partially in world trade and in FDI, Japanese firms were compelled to look to FDI simply because of the small size of Japan’s domestic market. After considering their production’s global competitiveness and the The Process of Monozukuri in Global Business… 29 foreign local market as a whole, these companies adopted a monozukuri strategy to realize FDI in secondary industry in Japan. According to Takahiro Fujimoto, Competing to be Really, Really Good:- The Behind-the-Scenes Drama of Capability-Building Competition in the Automobile Industry, the paradigm of international competitiveness put out by Japanese automakers and other Japanese manufacturing companies by the 1980s was noticeable in three areas. The first was is the way they reconciled high productivity, high quality, and short lead time; the second was their unparalleled flexibility in minimizing cost increases associated with deploying extensive product portfolios. The last area was in how they demonstrated superior organizational learning in raising productivity, improving quality, and resolving other kinds of manufacturing issues (Fujimoto 2007). In relation to capability-building competition, Fujimoto emphasized the characteristics of Japanese production systems in 13 distinc- tive aspects: (1) product development, (2) manufacturing, (3) purchasing, (4) product design information, (5) optimizing design information in product development, (6) raising the density of information transfer in manufacturing, (7) maintaining the integrity of information, (8) kaizen improvements as problem-solving cycles, (9) devolution of authority to the workplace, (10) standardized tools, (11) swift action, (12) cumulative improvement, and (13) effective management of supplier relationships. Taking (1), product development, for example: The product manager was the very person in charge of the work, and a characteristic of product development was collaborative engineering and the small size of the teams assigned to each phase of activity. For this purpose, training and deploying multi-skilled engineers and technicians provided versatility and flexibility to production teams (Fujimoto 2007). Fujimoto referenced the book, The Machine That Changed the World, edited by James Womack and Daniel Jones, who explained Japanese automakers’ dominance in productivity and in other aspects of competitiveness, as found in the 1990 report of the Massachusetts Institute of Technology’s International Motor Vehicle Program. Fujimoto added that the book contained some exaggeration and a bit of oversimplification, 30 K. Yamazaki but it was an epoch-making explanation of how Japanese automakers had become so strong in manufacturing, purchasing, product development, and other phases of the automobile business (Fujimoto 2007). Fujimoto expects the monozukuri concept of capability-building can continue endlessly in the Japanese automobile industry and in information technology for shortening lead times in product development. Front-loading is an example, as it illuminates problems that occur during front-end work such as preparing design drawings, and it helps avoid problems during subsequent work such as fabricating prototypes, when adjustments are time-consuming and costly. So, the new technology could apply to front-loading in the development. Moreover, Japanese automakers’ organizational capability can facilitate further leveled production, shorter assembly lines, made-to-order production, and more flexible manufacturing (Fujimoto 2007). After the summer of 2008, when the Lehman shock occurred, Japanese global companies had to adopt an omnidirectional strategy in which they had to seek optimal solutions in a worldwide adverse business environment. Japanese multinational enterprises (MNEs) exist in three kinds of international businesses: (1) The multi-business-pattern is involved in not only product export, but social capital export, so called a ‘project export,’ and FDI. (2) In industry-wise FDI, even a tertiary industry like a convenience store industry has launched into foreign markets. In fact, the stores of Seven-Eleven Japan Co., Ltd. in foreign countries outnum- ber those in Japan. (3) Global marketing varies in areas for Japanese MNEs. They focus on the African market as the remaining big market in the world. How the case study MNEs cope with difficulties under the three various circumstances will be explained in Chap. 4.

References and Note Abegglen, James C. (1958) The Japanese Factory:-Aspects of Its Social Organizations, The Massachusetts Institute of Technology, ppxi–xiii, x, pp130–133, pp45–46, p44. Czinkota, M., Ronkainen, I., and Moffett, M. (1992) International Business, The Dryden Press, 1992, p414. The Process of Monozukuri in Global Business… 31

Although sogohshosha originally was derived in Japan, it became an English term because it is not common for the type of business of a trading company done in other parts of the world.

Dunning, John H. (1986). Japanese Participation in British Industry, Groom Helm Ltd., p6, pp16–18, p39, p61, pp69–71, pp79–80 and pp159–160.

See also Dunning, John H., “The Key Literature on IB Activities: 1960–2000,” in Alan M. Rugman and Thomas L. Brewer, eds., (2001), The Oxford Handbook of International Business, Oxford, UK, Oxford University Press, pp36–68

Fujimoto, Takahiro (2007). Competing to Be Really, Really Good: The Behind-the-Scenes Drama of Capability-Building Competition in the Automobile Industry, International House of Japan, p45, pp49–63, p80, and pp135–143. JETRO. See https://www.jetro.go.jp/en/, searched in August 2016.

The definition of monozukuri by the Japanese Institute for Trade and Organization (JETRO) is having a spirit of producing excellent products and the ability to constantly improve a production system and the process.

Koike, Kazuo (1995). The Economics of Work in Japan, LTCB International Library Foundation, pp63–65, pp13–14, pp195–196.

He referred to the following several books as vital references: a) Makoto Takamiya, Japanese Multinationals in Europe (Berlin: International Institute of Management, 1979, b) Keith Thurley and Susumu Takamiya, Japan’s Emerging Multinationals (Tokyo: Tokyo University Press, 1985), c) Malcom Trevor, The Japanese Management Development Systems: Generalists and Specialists in Japanese Companies Abroad (London: Dover, 1986).

Kujawa, Duane (1986). Japanese Multinationals in the United States-Case Studies, Praeger Publishers, pp5–10, p50, pp138–141, p157, p256, pp239–240. 32 K. Yamazaki

OECD. http://stats.oecd.org/ searched on January 2, 2016. Rostow, W.W. (1960). The Stages of Economic Growth-A Non- Communist Manifesto, New York, Cambridge University Press, p38. Walton, Mary (1986). The Deming Management Method, New York, The Putman Publishing Group, pp55–118, pp122–123.

Deming’s words in a nutshell were “The right quality and uniformity are foundations of commencement.” See page 110.

Wilkins, Mira (1989). The History of Foreign Investment in the United States to 1914, Cambridge, Massachusetts, Harvard University Press, pp5–9, pp516–517. Wilkins, Mira (2004). The History of Foreign Investment in the United States 1914 to 1945, Cambridge, Massachusetts, Harvard University Press, pp286, 351, 365.

See also Wilkins, Mira, “The History of Multinational Enterprise,” in Alan M. Rugman and Thomas L. Brewer, eds., The Oxford Handbook of International Business, Oxford, UK, Oxford University Press, 2001, pp3–35. 3

Hybrid Theory and Japanese Global Management

Synopsis of Hybrid Theory in Relation to Monozukuri

As described in the previous chapter, monozukuri is the crafting of something by a thorough use of art, science, and skill. Even in large manufacturing corporations, a monozukuri of high quality products by a perfect method or craftsmanship is always required to some extent. Therefore, monozukuri is in fact equivalent to hito-zukuri, or manpower building, that is, nurturing craftsmanship, resulting eventually in soshiki-zukuri, or organizational and capability building. On the other hand, the hybrid theory analyzes management internationally transferred taking into account the human, material, method, and result in a ‘four-perspective evaluation.’. In a similar sense the same theory can be applied to analyze Japan’s FDI into manufacturing MNEs with monozukuri strategy. The hybrid theory of application and adaptation was established in 1989 by the Japanese Multinational Enterprises Study Group (JMNESG) headed by Tetsuo Abo, then a professor at the University of Tokyo, after a long period of visiting Japanese companies in the United States and Japan. Furthermore, the theory was finally completed following research

© The Author(s) 2019 33 K. Yamazaki, Japanese Global Strategy, https://doi.org/10.1057/978-1-137-49738-3_3 34 K. Yamazaki discussions with American scholars, M. Wilkins and D. Kujawa. JMNESG has applied the theory to Japanese subsidiary corporations all over the world since then by measuring the degree of management transfer from parent companies in Japan to their related corporations in foreign countries. Up to 2015, JMNESG visited more than 280 Japanese companies in 35 countries and analyzed the management from 23-aspects, applying a score on 5-point scale (Abo 1994). The research questions consists of 23 items in groups of 6, neatly summarized for the home country and its host country, set next to each other. Each local factory of the Japanese enterprises is assessed on a scale of 1–5 to show where it is ranked between the two extremes. Each Japanese- affiliated (host country) factory is evaluated vis-à-vis adherence to the factory practices of the home country or adaptation to the those of the host country. A score of 5 indicates it operates most like the home country, whereas a score of 1 indicates it adapts mostly to the host country. If the state of a factory is in between, the score is judged at 3, and if it is closer to the home country model, at 4 (the adaptation degree is judged conversely, with 2 being closer to the host country). Visiting members assign their scores of the real state of the factories based on the assessment criteria of the application and adaptation list. The final score is decided by discussions of all members in the company reports. Even though eval- uations do not often differ by much, sometimes subtle differences arise over which for a discussion of hours and even a day is needed to determine the company’s final score for a single item. Although the hybrid theory of application and adaptation was formed by observation of Japanese-affiliated factories in the USA, it can be applied to other countries. However, when evaluating Japanese enterprises in the less industrialized countries, it is hard to say by what criteria one should decide on degree of adaptation because there might not be a definitive managerial system functioning there. Further detailed investi- gation could allow one to devise a logical system for the respective country, but assuming the many different criteria that would be needed, this would be too complicated. Considering the difficulty, researchers instead apply criteria that illustrate how deeply the Japanese way is rooted in other countries’ factory operations: A score of 5 is given to a local factory that operates the same as the home factory in Japan. A score of 1 is given Hybrid Theory and Japanese Global Management 35 if it applies no Japanese element, relying on the criteria of the permeation of the Japanese system. Utilizing this method, researchers are able to retain a wide range of application of the hybrid theory. For reference ‘evaluation criteria of the application degree for the United States research’ is attached to Appendix 4. The hybrid theory uses a 23-item evaluation, put into six groups, to assess the overseas transfer of the Japanese management and production system. The six groups are: (1) Work organization and administration (6 items), (2) Production control (4 items), (3) Procurement (3 items), (4) Group consciousness (3 items), (5) Labor relations (4 items), (6) Parent- subsidiary relation (3 items). Besides these, there is a ‘Four-Perspective Evaluation’ that consists of ‘Human-result,’ ‘Material-result,’ ‘Human- method,’ and ‘Material-method’ to clarify the real state of the local management, checking how deeply the Japanese system is permeated in the local country. Included in the four-perspective evaluation are 23 items to check follows. First, regarding the analysis of three procurement items, the degree of keiretsu is treated in the theory. Keiretsu is an enterprise group with linked capital, which is an interlocking corporate grouping. In procurement, keiretsu dealings have the advantage that a supplier has a stable customer in the keiretsu to sell parts and material consistently at a reasonable price. Therefore, the supplier has invested in research and development for the customer in order to provide better quality and more price-competitive products and services. The disadvantage of keiretsu dealings is that seller and a buyer depend on each other. A seller dodges any price-cut request from a customer easily, whereas a buyer tends to be satisfied with purchasing products and service at a certain price. The ‘human-result’ perspective of the four-perspective evaluation includes the items ‘ratio of Japanese expatriates’ and ‘working position of local managers’ incorporated in it. The perspective of ‘material-result’ has ‘production facilities’, ‘local contents’, ‘the suppliers of parts’, and the perspective of ‘material-method’, the items of ‘quality control’, ‘maintenance’, ‘the way of the parts procurement’. In the ‘human-method’ perspective,

there are all six items of ‘work organization and administration,’ all three items of ‘the sense of participation,’ the items of ‘employment security’ and ‘processing complains.’ 36 K. Yamazaki

This ‘four-perspective evaluation’ is said to be remade from the viewpoint of the element that is closely associated with the solid system transfer and the one that is effective for the enterprise to produce the actual results. However, the four-perspective evaluation does not lead to solid transfer. That is to say, the perspective of ‘material-result’ is to bring in the local place parts and materials based on the parts procurement system established in Japan, and the perspective of ‘human-result’ supplements the various administration and control functions at the local site by dis- patching the staff trained in Japan. In sum, both side results have the effect of bringing in the ready-made human and physical managerial resources to the local sites, enabling the company to produce results quickly. On the other hand, ‘human-method’ and ‘material-method’ show the sides that take root locally by making the human and physical control ‘method’ itself peculiar to Japanese management, and a production system takes a firm hold among local people and enterprises. Though it consumes time and labor, this can be seen as an authentic international transfer of technological and managerial production system. Furthermore, in the long run it brings benefits to the parent company such as cost reductions and the hybrid effect of utilizing local managerial resources (Yamazaki et al. 2013).

Reality of Japan’s FDI in View of Hybrid Theory

According to Data Bank Series Six 2015 (Toyo Keizai Inc. 2015), 4929 Japanese companies invested in 136 foreign countries, 2078 corporations are listed companies and 2851 non-listed in the Tokyo Stock Exchange. The number of companies with investments abroad increased by 10%, listed companies rose by 6%, and the number of non-listed companies rose by 14% compared with the year of 2014. This reflects the process of globalization, relevant even for small and middle-size companies in Japan. In his Researching international transfer of the Japanese-style management and production system: hybrid factories in six continents, Tetsuo Abo surveyed the visiting results of more than 280 Japanese companies overseas, and analyzed their data by the hybrid theory (Abo 2015). He found that as for the six groups figure in Latin America compared with the world average except Africa, the region outlines almost the Hybrid Theory and Japanese Global Management 37 same shape except for ‘parent-subsidiary relations’, based on mixture of several historical and geographical factors (Abo 2015). Then, he summarized the visiting results of Africa, with its varied histories of European colonialism, Arabic cultural traditions (especially in North Africa) and a whole spectrum of qualities have for long been considered an important part of its character. In his analysis of Africa, European influence is significant in ‘labor relations’ (industrial unions), ‘job classification’ (clearly defined job titles), ‘wage system’ and ‘promotion’ (no appraisal) in the ‘work organization’ group, and factory management by technicians in the field of ‘human- method’. This is also the case in ‘maintenance’ and ‘quality’ (control by specialists) of ‘material-method’. Judging from his experience, the bar- gaining power of labor unions in South Africa is probably the strongest in the world. In the six-group, 23-item hybrid evaluation, the score for ‘procurement’ is by far the highest in the world, indicating the features of a developing country, with high scores for ‘material-result’ depending on the import of parts and materials from Japan and Asia (Abo 2015). In his conclusion, the ‘East Asia pattern’ is the most striking, and it looks a certain phenomenon like a convergence figure that is observed in the United Kingdom in the late 1990s and in the United States during 2000–2001. In addition, he considered those elements that are difficult to transfer internationally and what the implications are. These questions are largely concerned with the particularity and generality of the Japanese system, referring to monozukuri. In other words, the most difficult but necessary core element can be described as ‘a flexible way of working under a fully participative, hands-on approach over a more specialist approach’, that can offer some preliminary observations regarding generality. To summarize: (1) the geographical elements in both locational differences as well as the historical background are vital to the sociocultural context in a nation or region. Locational factors play an important role in creating variants in the socio-cultural framework and in fundamental systems and social organizations. (2) In China, Japanese MNEs were forced to change their ideas in order to make local ‘adaptation’ a source of competitive superiority: it became clear that a rigid ‘application’ of the Japanese system was not the only way to establish competitive superiority 38 K. Yamazaki needed to meet the characteristics of the Chinese market. (3) The manufacturing industry, especially automotive-related, is considered to be the most relevant to contemporary Japanese society. Japanese firms have had remarkable international competitive advantages in the sector. Furthermore, the sogoshoshas, or general trading companies, have been active in the natural-resources market, especially in Africa, bringing competitive advantages to Japanese firms (Abo 2015).

Comments and Supplement to the Hybrid Theory

Abo’s publication led to widespread debate. Among many commentaries, three stand out: those of Axele Giroud, from the University of Manchester, UK (Giroud 2015), Roger Strange and Norifumi Kawai at the University of Sussex, UK (Strange and Kawai 2015). The following is the summary of their commentaries.

Quote

(1) Within regions or continents, more could be integrated to refine the explanation behind a specific management system. This call for a more comprehensive analysis of local factors may induce diverging trends in management methods. (2) Local contexts have changed significantly over the past few decades, and geography and the distance between headquarters and subsidiaries matter. But much of the detail pertaining to individual countries and geographic distance are lost. (3) More research is needed to better unveil how the Japanese management system has evolved, and what needs to evolve in the context of a more global world, with increased interconnectedness and the rise of subsidiaries as knowledge creators. (4) Two assumptions—(1) that the companies in the automotive and electronics industries were world leaders, and (2) that many Japanese MNEs were relative novices in FDI—have become more and more questionable now than they have in the 1990s and onwards. Hybrid Theory and Japanese Global Management 39

(5) Greater adaptation to the host-country environment may yield positive benefits in some circumstances, while greater application of home-country practices may be preferable in others. The issue is important not only in China, but in all host country settings. (6) It would be interesting if JMNESG could distinguish between place and time effects.

Unquote In response to the above comments, JMNESG could explain considering the past research and publications as follows. Regarding (1), when local factors were found to affect the management system in certain regions or continents, JMNESG discussed first what they were like Japanese one and secondly whether they were introduced into the criteria, and finally the discussion process recognized some factors as functionally equivalent. In case of 1998’s research in Western Europe, JMNESG found a work council system, same in function as management-labor consulting system in Japan (Kumon and Abo 2004). On the contrary, at the time of the research on Latin America in 2006, JMNESG expected there might have been a similar system, but the functional equivalence did not exist (Yamazaki et al. 2013). The thought of ‘Arabe’ being a predominant life value in Africa might affect the group activities among employees, and that was analyzed in IV. Group Consciousness of the hybrid theory. Concerning the comment (2), the sixth group (three items) in the hybrid theory may be related to individual countries and geographical distance. The farther distance between headquarters and subsidiaries, the less the application score in the host country, because the longer period of time takes flying to the farther location just in case. Furthermore, if the country has plenty of capable managers, it is not necessary for the company to send the expatriate to the country. Therefore, the more excellent managers are available, the is the less application score in the subsidiaries. As for comment (3), IBM Japan has been a knowledge creator for IBM headquarter in the USA since the 1970s. Japanese foreign subsidiaries increasingly do creative work for the Japanese parent companies in some industries. Abo also explained this evolution in Asian Business & 40 K. Yamazaki

Management quoting a presentation about Germany’s Bosch given by Juhn, a member of JMNESG. However, the significant independent innovation in Bosch’s Asian subsidiaries happened only in the framework of ‘global intra-firm standardization’ by the German headquarters. In addition, if the five-point criteria of the hybrid theory changed markedly as Japanese management has evolved, the theory could be destructed and could be affected by time effect as a result of 5-point evaluation. In response to comment (4), it is clear that the electronics industry in Japan no longer has a decisive technological edge, because the industry is suitable for module production as the follower can catch up easily. On the other hand, the technology of automotive assembling, including the automotive components industry, is so dependent on suriawase, which consists of comparing, adjusting, and reconciling techniques between both industries mutually, that other countries can’t reach high-quality levels through cutting-edge techniques. This is a key part of monozukuri strategy. As for (5), Japanese subsidiaries in China have been undergoing a rapid change in modified socialistic society. Russia also embraces modified socialism, but JMNESG has not yet surveyed this officially. If the joint ventures are shared 50% or more by Chinese companies, less application scores in the subsidiaries were preferable, although the technique and technology were imported from their parent corporations in Japan. Furthermore, since China is a huge country, the factory location in which regions are located is an important factor in managing the company. Regional regulations vary state by state and region by region, too. As for (6), there are many published articles on the time effect by a hybrid theory. Among them is Spaces of International Economy and Management- Launching New Perspectives on Management and Geography (Yamazaki 2012), which depicts the same longitudinal research at the same companies in Brazil and Argentina, compared in 2001 and 2006. The material-methods quadrant of four-perspective evaluation had the increasing score trend in both countries in 2001 and 2006. While the human-methods quadrant shifted from 3.9 to 3.6 in Brazil, and from 3.4 to 3.6 in Argentina, the human-results quadrant moved from 2.3 to 1.8 in Brazil with remaining 1.5 in both years in Argentina. Furthermore, the material-results quadrant went from 3.5 to 3.2 in Brazil and from 3.3 to 3.7 in Argentina. Judging from the four quadrants for both cases, the trend of decreasing application scores was shown except for Argentina’s human-methods. Hybrid Theory and Japanese Global Management 41

Customers’ requirement was to supply high quality products by lower prices than before. To realize this requirement the company had to apply Japanese system more precisely in work organization and administration, but had to be more localized in material and management. This resulted in the decrease in scores in the quadrants as mentioned above. Another is Yamazaki’s Auto Parts and Components in Automobile Industries by Hybrid Analysis of Japanese Transplants in the United States (Yamazaki 2011). This focuses on time effect on Japanese management in the automotive parts and components industry in the USA that was conducted in 1989 and 2000–2001. The industry included 15 companies visited in 2000 to 2001, nine companies in 1989. Interestingly, the four-perspective evalua- tions by the average scores among the companies had the same trend as those studied for Argentina. The score of a human-method quadrant was the only exception that increased from 3.4 in 1989 to 3.5 in 2000 to 2001. Other three quadrants decreased, such as material-method from 3.1 to 3.0, human- result from 4.3 to 2.7, and material-result from 3.7 to 2.6 accordingly. As discussed before, the hybrid theory is one of the clearest explanatory methods for Japanese global management, especially Japanese management transferred overseas. The hybrid theory is to be statistically analyzed based on its field work via visitations of factories and collection of data there in management style. The analysis of management style does not lead to a corporate strategy in use, but the refined statistics like a multi- variate analysis might help the theory evolve in corporate strategy.

Refining the Hybrid Theory by Kaizen Trial

The following represents the author’s own thoughts regarding hybrid theory; it is not authorized or discussed sufficiently within JMNESG. As far as four-perspective evaluation is concerned, two items are omitted. They are ‘delegation of authority’ and ‘operations management.’ From the ‘6-group, 23-item hybrid evaluation’ framework, 23 evaluation items are taken and classified adding two items (Table 3.1). Now a four-perspective evaluation is completed by 23 items, that the hybrid theory may become equally as a perfect theory because three method analyses such as a 23-item individual method, a six-group management one and a four-perspective evaluation one are of equiva- 42 K. Yamazaki

Table 3.1 Revised four-perspective evaluation method Method element Human Material Methods G1: Work organization and G2: Production administration control All items: 1 to 6 8. Quality control G2: 10. Operations Management 9. Maintenance G4: Team sense G3: Procurement All items: 14 to 16 13. Methods G5: Labor relations All items: 17 to 20 Results G6: Parent-subsidiaries G2: Production (readymade) 21. Ratio of Japanese expatriates control 22. Delegation of Authority 7. Equipment 23. Position of Local Managers G3: Procurement 11. Local Content 12. Suppliers lence in principle. It is like a nation’s income theory in economics: there is a principle of equivalence from three aspects. Since foreign subsidiaries are surrounded and their management influenced by the environment of the host country, the significant classification is whether 23 items are (1) affected, (2) influenced or (3) not affected by the outside environment. The list of 23-item analysis by the environment is as follows (Table 3.2). The list could be beneficial for comprehending what Japanese global strategy is like and how foreign subsidiaries cope with difficulties to achieve optimum profits. One hypothesis is suggested if the subsidiary is doing business well, what kind of a strategy does it adopt? And that strategy would depend on which are ‘affected’ and ‘influenced’ items which have less application scores and ‘none’ items which have more application scores. The hypothesis will be verified in the subsequent chapters at nine case-corporations. Hybrid theory does not take account of the sales function in the management system. The author will supplement the theory by one item of sales management in host countries. The evaluation criterion of sales function could be added as a 24th item. Hybrid Theory and Japanese Global Management 43

Table 3.2 Extent analyzed by environment for 23 items Affected Influenced None I. Work Organization and Administration Job Classification x Wage system x Job Rotation x Education and x Training Promotion x First-line Supervisors x II. Production Control Equipment x Quality Control x Maintenance x Operations x Management III. Procurement Local Content x Suppliers x Procurement Method x IV. Group Consciousness Small Group Activities x Information Sharing x Sense of Unity x V. Labor Relations Hiring Policy x Job Security x Labor Unions x Grievance Procedures x VI. Parent-Subsidiary Relations Ratio of Japanese x Expatriates Delegation of x Authority Managerial Position of x local people 44 K. Yamazaki

VI Parent-Subsidiary Relations

(24) Sales Organization by Application Score

5. The sales organization is in the same building site as in the factory. It closely communicates with the production department and also consti- tutes the projected sales organization of the headquarters (HQ) in Japan. Therefore, the sales workforces communicate with the HQ daily, and convey order information to the head by online or batch operation. 4. The sales organization is another corporation and is located in different place, so that the sales persons visit the factory for meetings or sometimes have conference calls with the factory. The sales corporation communicates closely with either the regional HQ or HQ in Japan. The director of production wears the sales cap, too. 3. The sales organization is another corporation, and has no relation of capital and human resources with the production company. It is parallel to the production department under the regional HQ or HQ in Japan. As the production company receives the order information from the sales corporation periodically, it manufactures the products based on orders from sales. At the bi-annual directors’ meeting, HQ in Japan as well as the sales corporation will join this meeting to exchange opinions. 2. The sales organization is another corporation, and the production company receives some orders from the other sales corporations without its capital relation. Therefore, the general managers in the production company pay attention to the market trend, and report to the regional or Japan’s HQ from time to time. 1. There are no sales companies related to the production company in terms of capital, neither directly nor indirectly. As the manufacturing company is concentrated in production, its sales-service department in the factory receives the orders, which are reflected in product items and quantity. As for the sales and market information, the general manager in the manufacturing company reports them to the regional or Japan’s HQ annually. Hybrid Theory and Japanese Global Management 45

The subsidiaries at nine case corporations by the application score based on the added criterion will be evaluated in subsequent chapters.

References and Note Abo, T. (ed.) (1994). Hybrid Factory: The Japanese Production System in the United States, New York: Oxford University Press. Abo, T. (2015). “Researching international transfer of the Japanese- style management and production system: hybrid factories in six continents” in Asian Business & Management, Vol. 14, 1, 5–35, Macmillan Publishers Ltd., pp27–32. Giroud, A. (2015). “Abo’s ‘application-adaptation (hybrid) model’: A commentary” in Asian Business & Management, Vol. 14, 1, 37–42, Macmillan Publishers Ltd. Kumon, H. and Abo, T. (eds.) (2004), The Hybrid Factory in Europe: The Japanese Management and Production System Transferred, Basingstoke, UK: Palgrave Macmillan. Strange, R. and Kawai, N. (2015), “The past, present and future of the hybrid factory: Lessons from the study of the management of Japanese MNEs overseas” in Asian Business & Management, Vol. 14, 1, 43–51, Macmillan Publishers Ltd. Toyo Keizai Inc. (2015). Data Bank Series Six 2015, Kaigai Shinshutsu Kigyo Soran (in Japanese), Tokyo, Japan. Yamazaki, K., Juhn, W., and Abo, T. (ed.) (2013). Hybrid Factories in Latin America, Basingstoke: Palgrave Macmillan, pp7–10, pp227–228. Yamazaki, Katsuo (2012). “Spaces of Japanese Management: Toward a Dynamic Hybridization Theory,” in R. Schlunze, N. Agola, and W. Baber (eds.), Spaces of International Economy and Management-Launching New Perspectives on Management and Geography, Basingstoke, UK, Palgrave Macmillan. Yamazaki, Katsuo (2011). “Auto Parts and Components in Automobile Industries by Hybrid Analysis of Japanese Transplants in the United States” in T. Kawamura (ed.). Hybrid Factories in the United States-The Japanese-Style Management and Production System under the Global Economy, New York, USA, Oxford University Press, Inc. 46 K. Yamazaki

Appendix 4: Criteria for Application/Adaptation (Hybrid) for Evaluation of 23 Items in Six Groups

I. Work Organization and Administration

(1) Job classification (JC) 5 – Number of JC is 2 or less 4 – 3 to 5 3 – 6 to 10 2 – 11 to 50 1 – 50 or more (2) Wage system 5 – “Person-centered” wage determination main criterion is length of service (Nenkoh): personal evaluation (PE) conducted by supervisors close to workers 4 – Wages determined mainly by length of service, and partly by objective PE that includes worker input and requires worker approval 3 – Simplified JC system is introduced; PE system determines wages 2 – Simplified JC determines wages; PE system does not determine wages 1 – Rigid and detailed JC system determines wages (3) Job rotation (JR) 5 – JR is carefully planned and frequently conducted within and beyond work teams. Its clear aim is training of multi-skilled workers (e.g. training table kept by team leaders and supervisors) 4 – JR is planned and frequently conducted within but not beyond work teams 3 – JR is frequently conducted with work teams Hybrid Theory and Japanese Global Management 47

2 – Rigid job assignment system is moderated to some extent (job reassignment when product mix is changed, frequent product mix change, etc.) 1 – JR is nonexistent; job assignment is rigid (4) Education and training 5 – (1) On-the-job training (OJT) is the main system for training multi-skilled workers, together with long-term systematic training, and (2) There is a training system for team leaders and maintenance personnel through OJT and systematic training; sending trainees to Japan and bringing trainers from Japan with special training programs and facilities 4 – (1) Workers trained through OJT and special preparations and arrangements are made to accommodate this (2) Training of supervisors (team leaders) and maintenance personnel in Japan; special training programs and facilities (e.g. a training center) 3 – (1) OJT is emphasized; team leaders have some responsibility for training workers; team leaders have assistants for task training (2) Some training program for team leaders or maintenance personnel exists inside or outside the company 2 – (1) OJT is not emphasized; some arrangements exist for outside training (e.g. reimbursement of school fees) (2) Outside education and training is recognized as a job qualification 1 – (1)OJT is not emphasized (2) No special inside training program for team leaders or maintenance personnel (5) Promotion 5 – (1) Worker promotion based on length of service (Nenkoh) and PE, which is conducted by direct supervisors (2) Internal promotion to supervisor with recommendations by direct supervisor 48 K. Yamazaki

4 – (1) Based to some extent on length of service (Nenkoh) (2) Internal promotions to supervisor with recommendations by direct supervisor 3 – (1) Based on PE and specific qualification; seniority does not play a strong role; job posting is also adopted (2) Supervisors internally promoted through job postings; corporate skills significant; seniority rule is not rigid 2 – (1) Based on seniority, PE is conducted and also job posting is utilized 1 – (1) Based on seniority and utilize job posting (2) A high percentage of supervision recruited from outside the company (6) First-line supervisors (or team leaders) 5 – Internally promoted and function as team leaders and have technical control of production process including industrial engineering (IE) functions 4 – Some as above (5 points) but to a lesser degree 3 – Most supervisors internally promoted; weak team management and weak process control functions (e.g. no active role in job rotation or multi-skill training; may have assistants for IE) 2 – Some supervisors internally promoted; role is mainly labor management and discipline 1 – Internal promotion is not a rule; role is exclusively labor management and discipline

II. Production Control

(7) Equipment 5 – 100% of equipment imported from Japan 4 – 75% to less than 50% of equipment imported from Japan 3 – 50% to less than 25% of equipment imported from Japan 2 – 25% to more than 1% of equipment imported from Japan 1 – 0% of equipment imported from Japan Hybrid Theory and Japanese Global Management 49

(8) Quality control (QC) 5 – Emphasis on QC conducted by workers during the actual process 4 – QC conducted by workers during the process but there are insufficient accommodation for this (e.g. workers have no line-stop authority; QC or zero defect (ZD) circles are not very active) 3 – QC conducted by specialists during each process; QC and quality checks by specialists from an independent QC section also emphasized (high proportion of such checks) 2 – QC relies on checks by specialists from an independent QC section; relatively close checks are conducted during each process (number of QC specialists is relatively low) 1 – Quality checks by QC specialists on completed products (post process and outgoing inspections) are emphasized (9) Maintenance 5 – Shop floor workers are internally trained and promoted to maintenance personnel (including inexperienced workers hired separately from ordinary workers); preventive maintenance is emphasized; shop floor workers have some maintenance roles 4 – Same as above (point 5) but including some experienced workers hired separately from outside; preventive maintenance and shop floor workers’ roles in maintenance are not stressed 3 – Experienced workers hired separately but receive additional internal training before being promoted to maintenance personnel; shop floor workers do not have any commitment to maintenance 2 – Same as above (point 3) but experienced workers are sometimes hired directly as maintenance personnel 1 – Maintenance personnel employed mainly from outside and maintenance by engineers is emphasized (10) Operations management 5 – Flexible setup and special arrangements to cope with line fail- ures or defects (e.g. coordination and cooperation among firstline supervisors and team leaders, preventive maintenance, 50 K. Yamazaki

machine fail-safe devices (Pokayoke), production control signal board (Andon), standard procedures and work manuals brought in from Japan and modified and improved to accommodate local conditions (line balance adjustments etc.) high product mix, frequent product changes; reduction of die-change time is achieved to the same extent as in Japan 4 – Setup is less flexible than above (point 5), work manuals and maintenance know-how obtained from Japan; local job improvement (kaizen) is achieved to a much lesser extent; lots size is relatively small; die-change time approximate, though slightly less than that in Japan 3 – Moderate product mix (relatively large lot size with some batch production etc.) standard procedures and work manuals brought in from Japan but only with slight modifications to accommodate local conditions 2 – No specific provisions for coping with line fails or defects; operations control is engineering-oriented; local IE specialists establish and modify standard procedures 1 – Operations control is highly engineering-oriented (engineering section has dominant role in machinery operation and maintenance); production based on large lot methods

III. Procurement

(11) Local content 5 – less than 20% 4 – 20% to less than 40% 3 – 40% to less than 60% 2 – 60% to less than 80% 1 – more than 80% (12) Suppliers 5 – Material and parts mainly procured from Japan 4 – Procured from sister plants or Japanese suppliers located overseas (USA, Canada, Southeast Asia, Mexico) Hybrid Theory and Japanese Global Management 51

3 – High proportion of procurement from Japanese suppliers in the USA and Canada 2 – Procurement from Japanese suppliers in the USA and Canada, but the proportion of US suppliers is high 1 – Most procurement from US suppliers (13) Procurement method 5 – Japanese subcontracting system exists with local suppliers 4 – To some extent the Japanese subcontracting system exists with local suppliers; technological assistance and long-term contracts are applied to US suppliers 3 – Some arrangements are made to reduce parts inventory as much as possible; technological assistance is attempted with US suppliers 2 – Local suppliers are expected to follow strict observance of delivery times 1 – Mainly spot trading with US suppliers; parts inventories are relatively high in order to cope with delayed delivery

IV. Group Consciousness

(14) Small group activities 5 – All workers participate voluntarily and play significant roles 4 – More than 50% of workers participate 3 – 20% to 50% of workers participate 2 – Less than 20% of workers participate, or only in special “model” cases; some emphasis is placed on meetings and suggestions for quality and productivity 1 – No small group activities (15) Information sharing 5 – Company-wide information sharing and communications actively practiced (e.g. meetings for all employees, president meets all employees in small groups, vigorous small group activities, open-style offices) 52 K. Yamazaki

4 – Various provisions for information sharing exist but to a lesser degree than above (point 5) 3 – Attempts are made at information sharing at each level in the company through meeting and other means 2 – Meetings are held before work begins 1 – No special provisions for information sharing (16) Sense of unity 5 – Various device and practices such as company uniforms for all employees, open parking, social events, morning ceremonies, and so on. 4 – Many of the above devices and practices are implemented but to a lesser extent (e.g. uniforms are not compulsory) 3 – Only some of the above are practiced 2 – Only some social events are held 1 – There are no special practices

V. Labor Relations

(17) Hiring policy 5 – Applicants are carefully, meticulously screened; plant site selected where there is a homogeneous workforce 4 – Applicants are selected with care; plant site selected where there is a homogeneous workforce 3 – Plant site selected where there is a homogeneous workforce; if plant site is traditional industrial area, applicants are selected with care 2 – Special hiring considerations only if plant is located in a traditionally industrial area 1 – No special selection for hiring; plant is located in a traditionally industrial area (18) Job security 5 – Explicit (written) no-layoff policy that seeks to avoid layoffs as much as possible; provisions for long-term employment Hybrid Theory and Japanese Global Management 53

4 – Layoffs are avoided as much as possible but this policy is not explicit and there have been no layoffs; provisions for long-term employment 3 – Layoffs are avoided as much as possible but have occurred on rare occasion 2 – Layoffs are avoided as much as possible but have occurred many times 1 – Layoffs are prone to occur if at all likely (19) Labor unions 5 – There is no union, and labor relations are peaceful 4 – There is no union, but some problems exist in labor relations (e.g. attempts at organizing a union); or there is a union, but members are very cooperative 3 – There is a union and a cooperative tendency exists with the union (e.g. Management-Labor consulting system exists); or there is no union and there have been organization drives 2 – Union exists but it has relatively low membership; there have been strikes, but otherwise the union is not very active 1 – Union is 100% organized and there have been strikes (20) Grievance procedures 5 – There is no union and grievances resolved mainly on shop floor and through managerial channels 4 – There is no union and personnel department intervenes in the process of resolving grievance; or there is a union and grievances are resolved mainly on shop floor 3 – There is a union, and official grievance procedures are formal- ized, but emphasis is on shop floor and through managerial channels 2 – There is a union and official grievance procedures; grievances tend to be resolved on shop floor 1 – There is a union and official grievance procedures; there are many grievances; grievance procedures include external arbitration 54 K. Yamazaki

VI. Parent-Subsidiary Relations

(21) Ratio of Japanese expatriates For plants with 500 employees or more (for plants with less than 500 employees, add 1% to the result of calculation of the ratio): 5 – Ratio of Japanese expatriates is 4% or more 4 – 3% to less than 4% 3 – 2% to less than 3% 2 – 1% to less than 2% 1 – less than 1% (22) Delegation of authority 5 – Parent in Japan makes plans and decisions 4 – Subsidiary submits suggested plans and parent decides 3 – Subsidiary submits plans and parent evaluates and gives or withholds approval 2 – Subsidiary makes plans for approval by parent 1 – Subsidiary makes and approves its own plans (23) Managerial position of Americans 5 – Most important senior management positions, including president, are held by Japanese 4 – President is Japanese and many important positions are held by Japanese 3 – Japanese and Americans share management positions and important positions roughly equally 2 – President is American and majority of important positions are held by Americans 1 – President is American and all important positions are held by Americans 4

Case Studies on Japanese MNEs: Global Strategy

Nine companies are selected for the case studies in this chapter and they are all in the manufacturing sector. They have adoptedmonozukuri practices in their corporate strategy since the 1980s. In addition, they represent the Japanese industries in which they are currently doing business. In other words, they have maintained significant market shares in terms of their products and services. Furthermore, they employ an effective global strategy, and some of the companies have, as a result, increased their global sales to more than 50% of total sales. As such, they have an important presence in foreign markets. Let us examine them one by one.

DENSO Corporation

Overview of the Company: (1) DENSO is the model of a monozukuri company in the automobile components industry and is a supplier of products for almost all the car assemblers in the world.

(2) It has operations in 33 countries via 97 companies. The company earned 4.3 trillion JY in sales with 258.4 billion JY of profit in 2015, and 146,000 employees in 188 related enterprises of the DENSO group across the world. (3) The monozukuri strategy probably comes from the corporate culture with three Js: ‘jimini’ or inconspicuously, ‘jimichini’ or steadily, and ‘jicchokuni’ or faithfully.

DENSO Corporation (hereinafter called Denso) was established from the development department at Toyota Motor Co. in 1949, and then called Nippondenso Co., Ltd. The name of the company literally means ‘Japanese electric equipment for car,’ and was renamed in 1996. The company is said to be a ‘Toyota Group’ enterprise because of the history of its establishment, the high ratio (about 45%) of sales going to the Toyota, and the interchange of directors between the two companies. Therefore, where there is Toyota, there is usually Denso. As far as the Deming Award is concerned, the corporation gained it in 1961 and two subsidiaries of Denso group were given it. One is Asmo Co. Ltd., an OEM (Original Equipment Manufacturer) supplier of a cooling fan motor, a power seat motor, a front wiper system, a telescopic steering column motor, and so on (Asmo 2016). Another is Hamanakodenso Co. Ltd. It manufactures a purge valve, a head lamp switching solenoid, a fuel cut valve, an oil flow control valve coil, etc. as an OEM supplier. Its products are sometimes supplied to the automobile assemblers as a part of Denso systematic products (Hamanakodenso 2016). Denso may be seen as adopting a tetragon strategy in business units consisting of ‘powertrain control’ which is 35.5% of total revenue, ‘thermal’ which is 31.2%, ‘information and safety systems’, which is 14.5%, and others, at 18.8%. Other units are composed of ‘electronic’, ‘small motors’, ‘industrial systems’, ‘consumer products’, and ‘other non- automobile components’ (Fig. 4.1). The following is a summary of answers to the questionnaire to the general manager of international business and the assistant of Koji Arima, president. These activities were carried out in 2015. Analysts and investors may regard Denso as a pentagon strategy in regions of the world as Case Studies on Japanese MNEs: Global Strategy 57

19%

36% Powertrain Control Revenue Thermal 15% ¥4,309.8 billion Information & Safety Systems Others

31%

Fig. 4.1 Business group overview

Table 4.1 Synopsis by region in 2015 Sales Number of Number of amount Region offices employees (million $) Japan 62 61,654 26,645 North America 28 19,204 9665 Europe including Northern Africa 34 14,489 5548 Asia 58 43,731 10,497 South America & others 6 3636 738 Total 188 142,714 53,093 Note: The conversion rate is 100JY per US$ show in Table 4.1. The global strategy at Denso has been managed according to business unit, size of market, and location of offices. The product business units do not generally have their own salesforce and they are kept separate from the sales division not only in Japan but across the world. This sometimes happens for reasons of functionality at the same company within foreign operations. The research and development systems are highly organized and are called ‘Core Technical Centers’. Their locations are Santa Barbara in Brazil, Shanghai in China, Aachen in Germany, Delhi in India, Bangkok 58 K. Yamazaki in Thailand, Michigan in USA, and Aichi in Japan. All seven centers cooperate with the related production units systematically. As a result, it is possible that Denso can provide the most suitable products for customers locally, to achieve the development for competitive products by the collective wisdom of local people, and to build the cost-competitive monozukuri system globally. Examining monozukuri at Denso in more details, three characteristics are apparent:

(1) Bridge Production: This refers to the manufacture of the same products at the same time in different factories across the world in order to be in time for customer requests. In the case of Toyota Motor, the start of production of a new car model is usually the same across its factories in USA, Japan, and other countries. That is why bridge production is required. (2) Visualizing the symptoms of flaws: This is to share information of flaws and malfunctioning in the past and to verify them across overseas subsidiaries and mother plants. As a result, it is useful to seek out the symptoms and to prevent the flaws from happening in the future. In this process, the mother factory and its related factories overseas are closely tied together.

Strengthening Denso monozukuri by the IoT (Internet of Things) to become dantotsu factories globally: Dantotsu is a short form of Danzentoppu, meaning far and away the best or a decisive lead. The activities required to make the factories dantotsu began in 2012 under adverse conditions. There was a sudden Japanese yen appreciation and a radical decrease of domestic sales simultaneously. The purpose is to make the manufacturing cost down and to strengthen cost competitiveness in domestic factories. Koji Arima took office as a president in 2015 with the aim of developing and extending the company’s activities globally. This aim is not by a small percent of kaizen, but by a greater degree like 1/N to make operations more efficient. Arima thinks that in order to realize dantotsu factories across the world, this can only be done through the IoT. It connects production, quality, and information not only in in terms of the products by quantity and delivery, but by putting all of Case Studies on Japanese MNEs: Global Strategy 59

Denso workers’ wisdom, know-how and kaizen experience into one basket, and sharing it. His concept is that all factories are under one roof so as to judge adequate decisions anytime globally. Consequently, he is convinced that bridge production, visualization of symptoms and lean production results in better competitiveness. Arima has so far carried on his predecessor’s policy that there are five regional headquarters. They are located in Detroit, USA for the Americas, in Weesp, the Netherlands for Europe including Russia, in Haryana, India for South-west Asia, in Samutprakarn, Thailand for the ASEAN countries, and in Beijing, China for Greater China. The regional headquarters unify sales and marketing, human resource management, and operational assistance for the regions. They are not a profit center, but rather a cost center at Denso Corporation. Therefore, they set a target figure only for carrying out their objectives, and their results are not reflected in the corporate financial statement. In other words, the business unit plays a main role and regional headquarters are supplemental. Since foreign sales accounted for 49.8% of total sales in 2015 and Arima has emphasized expanding overseas markets as one of the major strategies in the mid-three-year plan ending in 2018, the function of regional headquarters is performing a more important role at Denso. Furthermore, about 30% of the heads in all related companies overseas were local people in 2015, and Denso would like to be more localized with respect to human resources in order to increase this ratio. Arima has already laid out the forecast for the business environment, and informed all associates where the company should be in 2025 and how to strengthen public relations across the globe. The company slogan is “protecting lives, preserving the planet and preparing a bright future for generations to come”. Before reaching 2025, he has identified indicated the values that Denso will deliver to society, a would-be corporate profile, a process to reform the company, a corporate orientation, and a desirable corporate culture in 2020. The detail of a would-be corporate profile is a cycle of goodness surrounded by the players consisting of customers, society and shareholders as outside drivers, and suppliers, employees, and the community an inside drivers. In order to realize the profile, the president is urging all employees to do the following three things based on Denso’s spirit; (1) to challenge themselves with a new self (2) to 60 K. Yamazaki convince themselves of the possibilities (3) to cultivate individuality mutually (Denso 2017). Consider how effectively Denso operates in some Asian markets. The operational concept is that ASEAN countries, India and Australia are one regional business unit, and the market should be developed along these lines. In addition, the monozukuri system in this area has realized the concept of ‘neighbor to the customer’ for bulky products and ‘concentrating production in one place’ for small and high functional products. The operation works through three regional headquarters, eight sales hubs, and 24 production centers extending from Saudi Arabia to India and Australia. Focusing on Indonesia, it is an emerging country as part of the VISTAS; Denso has established five companies to work closely with one another in this market. PT Denso Indonesia, known as DNIA, plays an important role in the group of Denso in Indonesia. The other four corporations are PT Denso Sales Indonesia (DSIA), PT Hamaden Indonesia Manufacturing (HDI), PT TD Automotive Compressor Indonesia (TACI), and PT Asmo Indonesia (AINE). These five companies employ about 8500 workers, including 80 Japanese expatriates. The author visited the Bekasi plant at DNIA on 9 February 2015, wherein aluminum radiators, magnet plugs, air cleaners, compressors with clutches, and paths for car air conditioners (a/c) were being manufactured. Production of the last two items are concentrated here specifically to meet the needs of the ASEAN market. Yutaka Yamanouchi, then president and managing director at DNIA, announced his annual policy in order to strengthen the company’s competitiveness based on the idea of ‘safety first’; (1) Nurturing human resources (2) Monozukuring to be of a desirable quality (3) Activating the tool department (4) Establishing a proper production flow by accelerating ‘big-room’ communication. Before he became the president in Indonesia, Yamanouchi had worked in Denso Manufacturing Michigan, Inc. (DMMI), USA and learned ikkonagashi’, meaning one lot flow, called a single operation, and a simultaneous production system (Liker and Meir 2006). He has explained that this is Denso’s basic idea of monozukuri, and he has developed the concept from the beginning after he joined DNIA. Case Studies on Japanese MNEs: Global Strategy 61

What impressed the author most is the ‘kousen school’ in the DNIA for nurturing human resources. The word ‘kousen’ means a five-year senior school of technology in Japan. Kousen school is educating graduates selected from the top level of high schools in Indonesia. Education and training lasts for one year without working on the production line and concentrates on high-end techniques in addition to basic technology.. Some trainees are chosen to participate in the Denso Olympics in the special field of techniques for monozukuri. Although 36 new applicants joined the kousen school in 2013, about 10% of them had dropped out by the middle of the course and were transferred to a less senior job. Most of the remaining workers on the course are assigned as a specialist or a chief of the line. Other programs for training, such as newcomers training called ‘Green Cards,’ and general employees’ training, are provided according to job position. The number of applications for entry into Green Cards can be ten times the number of available places. This rate is higher than the general ratio of job offers in the Indonesian labor market. After two weeks on the course, trainees are assigned to a line on the shop floor. General employees’ training maps out a program of nurturing multi-skill workers so that it includes advanced courses on safety and quality, the science of electricity and electronics, the use of personal com- puters and forklifts, and the techniques of welding, furnishing and soldering. Japanese expatriates are always present. During the factory tour with the author, Sakurai, senior general manager, joined in a stand-up meeting. Although such a meeting is spoken in Indonesian, he understands the essence of the topics so as to instruct workers what they should be doing. As DNIA is monozukuring firmly to be desirable quality, other Denso factories in the world are following this approach. The following are what the author has observed. Hirokazu Yagi, vice president in Denso Manufacturing Vietnam Co., Ltd., showed the author around the factory in summer, 2014. There was a manufacturing process called ‘the pregnant line’ for women who want to continue working during their pregnancy. Five to six pregnant women sat at a big table and made one line of monozukuri. This work environment is probably less efficient than a normal line configuration, but leads 62 K. Yamazaki to higher morale because the workers appreciate the opportunities being provided by the company. Mark Hayward, managing director in Denso Manufacturing U.K. Ltd., explained to the author in winter 2010 that Jikoteikanketsu (JKK) was the company policy of monozukuri that means built-in quality with ownership. In order to achieve JKK, there needs to be an understanding of all the ‘necessary conditions’ and ‘process criteria’ under people’s control and seeing that they are done correctly so that zero defects are passed on. For further information, a SWOT analysis for Denso is shown in Table 4.2.

Table 4.2 SWOT analysis (Denso) Strengths Weaknesses Denso Corporation 1. Famous brand of car 1. Lesser-known brands of air-conditioner auto-parts in China and 2. Having established a India close rapport with 2. Not having established a Toyota close rapport yet in Europe and North America PT Denso Indonesia 1. Securing an 1. Few technical leaders abundance of human having capabilities to resource in Indonesia replace Denso expatriates 2. Having established a 2. Insufficient funds for its strong rapport with own investment in Japanese auto- Indonesia assemble manufacturers Opportunities Threats Denso Corporation 1. Having ample 1. Decreasing demand for opportunities in automobiles in developed Indian and African countries markets 2. Competition from big 2. High-end products electronics manufacturers for Chinese auto- in the auto-parts market assemble manufacturers PT Denso Indonesia 1. Long-term economic 1. Reappearance of labor growth rate expected disputes to be more than 5% 2. Wages continuing to 2. Joko Widodo increase government disproportionately, expected to be stable compared to GDP growth for a long period rate Case Studies on Japanese MNEs: Global Strategy 63

Furukawa Electric Co., Ltd. (FEC)

Overview of the Company: (1) In 2004, the company’s slogan was ‘Firm in Our Resolve’ (Yamazaki 2012). The pentagon strategy had been working to boost the company’s vitality after the difficulties in acquiring optical fiber businesses from Lucent Technologies Inc. in USA. The company had been revitalized in five areas of business lines, notably information and communications, energy and industrial goods, copper metal, aluminum metal, and automobile electronics. (2) Since 2014, FEC has adopted a dual strategy across its operations. It has been focusing segments of marketing on an infrastructure business and on automobile industries. (3) The company began operations in 1884 and was incorporated in 1896. It won the Deming Prize in 1952, only the second year of its award. FEC is present in 25 countries and is operating in 102 companies overseas. Consequently, the company earned 868 billion JY in sales with 17.9 billion JY of profit in 2015. It has a total of 46,134 employees in 143 related enterprises across the world.

The author interviewed Takahide Kimura, corporate vice president and chief strategy officer, who stood in for Mitsuyoshi Shibata, president. Kimura explained the idea or doctrine, and vision which comes first and is larger than the concept. The idea indicates the business areas from which the company will enter in the next middle-term business plan. The domain might vary in the midst of a middle- and long-term business plan; however, the current domains are ‘infrastructure in the global society’ and ‘automotive industry.’ However, as the marketing target could be changed, the domain will change within five to ten years. No domains remain unchanged. Kimura is considering whether there is a way to integrate one domain, such as ‘.com’, for all Furukawa Group companies across the world, so that everybody can recognize the ‘One Furukawa Group’. He emphasized that the company’s home page is important and it should be improved every quarter. The company adopts a ‘backcasting’ method, not a fore- casting method when it makes a long-term business plan for its corporate 64 K. Yamazaki strategy. First, he thinks about the world situation ten years from now and where the company should be then. Then the future position drives the company back to thinking of a plan for the near future. Afterwards, the top management will decide what should be done in order to achieve the company’s goals for a decade hence. FEC announced the Furukawa Electric Group Sustainability Report 2015 and the Financial Report 2015 from April 2014 to March 2015. According to these documents, overseas sales was 44.4% of total sales in 2014 fiscal year, compared with 40.5% in 2011. Kimura mentioned that 50% is a feasible target as a strategy depending on the exchange rate. He wants to increase exports from Japan, but also to strengthen ‘out to out’ businesses that includes overseas production and delivery. The mid-term business plan must be approved by the board of directors, including four directors recruited from outside the company. In addition, a ‘Supreme Management Meeting’ consisting of a president and heads of business units is organized for practical and candid discussions. The company has adopted dual strategies in infrastructure business and automobile industries since 2015, so that investment can be integrated across the two fields. New products must be required to jump across ‘the valley of death’ during the transfer process from the R&D department to the designated business department. Therefore, Shibata, president and chief operating officer has positioned the ‘new business acceleration’ department within the corporate strategy division. The department assists a new product team to solve problems. If the team cannot do it by itself, the department helps the team to determine how and what resources are put into the business. ‘Global Business Strategic Initiatives’ (GBSI) consist of a few select personnel, analyzing country risks and business difficulties. Information gathered is stored in a database. In case of developing new businesses in a market, the organization will support the business unit by itself or by utilizing outside consulting firms like Institutional Shareholder Services Inc. (ISS 2006). The head of the automotive components unit will report to the president and/or chairman directly as well as to the board of directors. The unit preserves and cultivates a close rapport with each automobile assem- Case Studies on Japanese MNEs: Global Strategy 65 bler, and a firm relationship with the customer itself is corporate strategy. Consequently, the unit has its own sales and marketing department. The share of the automobile unit in total sales could be 50% by 2025. The business units related to infrastructure customers, fields within the market and products have a countless variety in each unit. Therefore, both ‘Sales/Marketing Business Unit’ and salesforces in domestic and foreign branches assist many infrastructure-related units to expand their businesses. ‘One F Automobile Business Driven Team’ in the corporate strategy division consists of ten different sub-teams in technology, and many business units are actively involved. Seven teams invented new products. The main aim of One F team is orienting the company’s operations for five to ten years in the future. Tatsuo Teratani, a director recruited from outside the company at FEC, advises the team what the trends are in the automobile industry from time to time. In addition, there is a ‘smart infrastructure (SI)’ team that is also a cross-sectional organization but for a shorter time horizon compared with One F. For the annual shareholders’ meeting on 27 June 2016, FEC announced that the ‘Furukawa G Plan 2020’ comprised three parts; (1) Strengthening the businesses and a change to be something new, (2) Expanding sales and promotions in the global market, (3) Accelerating capabilities focusing on research and development for new businesses. As a result of successful strategies based on the three policies, financial numerical targets in 2020 would be as follows.

(a) Consolidated sales profits: more than 40 billion JY (b) Net profits belonging to FEC stockholders: 20 billion JY (c) Return on equity: more than 8% (d) The share of overseas sales in total shares: 60%

Although FEC does not differentiate between domestic and international markets in terms of strategy, what does it think of achieving 60% of overseas sales? The global marketing strategy is now discussed. Kimura emphasizes that emerging markets with respect to infrastructure marketing are to place the first priority on developing businesses intensively and aggressively. But to execute this policy, human resources 66 K. Yamazaki suitable for international businesses are still lacking and it takes more time to nurture experts. The Strategical Business Unit (SBU) is responsible for production and sales, including all related companies in domestic and international markets. The staff-function departments of ‘Sales Marketing’ and GBSI will support SBU for sales and marketing from a broader strategic point of view. The GBSI has own objective and targets, but it is not responsible for profits at FEC. That is the responsibility of the general staff, such as a human resource department. The chief officer of GBSI supervises almost all the global infrastructure-related businesses. There are more than 100 overseas subsidiaries, and in a few companies local employees control the management; in the near future, most of the heads shall be replaced by local workers. The personnel responsible for finance and accounting must be Japanese. As far as foreign sales subsidiaries are concerned, all seven companies are operated by Japanese expatriates. Communication between GBSI and overseas subsidiaries is conducted through a variety of methods, such as a periodical reporting system, operating on a weekly or monthly basis. In addition, the general manager and staff in the global business initiative will conduct visits. The heads of foreign companies will also visit Japan annually. TV meetings are kept amongst the headquarters, the subsidiaries in Brazil and in North America, and meetings by telephone and the web are also conducted. The ‘One World Furukawa Meeting’ is held biannually for a two days in Tokyo. The concept of a regional HQ system is under consideration at FEC with two exceptions. The automobile unit already has its own ‘the South-East Asia HQ’ and ‘the China HQ’ at Shanghai. The omnidirectional strategy in global marketing at FEC focuses on the following regions and countries; (1) All countries in Europe, (2) Kuwait, Qatar, Saudi Arabia and Turkey in the Middle East, (3) China, Taiwan, and Korea in East Asia, (4) Ten countries in the ASEAN economic community, (5) India, Pakistan and Sri Lanka in Southwestern Asia, (6) The three NAFTA countries, (7) all Latin American countries, (8) The West Russia region, including Moscow, (9) Kenya, Morocco, Mozambique, Nigeria, South Africa, Tanzania and Zambia in Africa, (10) Australia and New Zealand in Oceania. Case Studies on Japanese MNEs: Global Strategy 67

Analyzing the automobile unit at FEC, Furukawa Automotive Systems Inc. (FAS) is a significant actor. As FEC is a nominal sales window for car manufacturers such as Toyota Motor Corporation, Nissan Motor Corporation, Honda Motor Co. Ltd., Mazda Motor Corporation, and others, they are all FAS customers. FAS is 100% owned by FEC, but integrates the R&D, production of wire harnesses and their parts, and services into one business. Wire harnesses and steering roll connecters are two main products; the former is the fifth largest supplier and the latter the largest supplier in the world. As for wire harnesses, cottage production was commonly employed until 1990 in Japan. So was the FEC. No integrated production system was carried out in one place but instead many sub-assemblies were produced in private houses and wire harnesses were collected by a milk run. Even at that time, an integrated production system was common in the USA and Europe. Therefore, as FEC’s first overseas production of wire harnesses was in USA, it invested in a joint venture company called United Technologies Furukawa Inc. (UTF), with United Technologies Automotives (UTA) being one of the divisions of United Technologies Corporation. The joint company, UTF, used to be shared 49% by FEC and 51% by UTA, and was divided into American Furukawa Inc., Furukawa Wiring Systems Mexico S.A. De C.V. and Furukawa Automotive Systems Acambaro Mexico S.A De C.V. All three companies are 100% owned by FEC. As the production learning processes developed for the integrated system, FEC decided to invest a large-scale factory of wire harnesses in Vietnam through FAS in 1996. The company name is called Furukawa Automotive Parts (Vietnam) Inc. (FAPV)and it exports all its products to Japan for the FEC’s auto assembling customers. This investment was con- spicuously successful in operational management at FAS and FEC. It has had major repercussions on operations in other Asian countries in addition to further substantial investment in Vietnam to establish Furukawa Automotive Systems (Vietnam) Inc. (FASV). FAPV has become the world center of outbound and inbound assistance for overseas operations at FAS. FAPV has sent technicians for start-up operations to sister-related subsidiaries in China, India, Indonesia, Malaysia, Mexico, Philippines, 68 K. Yamazaki

Thailand and FASV. As for inbound assistance, FAPV has received trainees from all FAS subsidiaries overseas. At the time of interview with Katsumi Shibata, president at FAS, he explained that the sales share amounted to 70% for the domestic operation through FEC and 30% for the overseas operation through FAS subsidiaries, while the production volume was 93% for overseas, the rest for domestic. FAS would like to expand the ‘out-out’ business, whereby foreign customers are supplied by manufacturing products overseas. Examples include a Mercedes-Benz factory in Vietnam and a technical office established in Frankfurt, Germany in 2014 to maintain contact with the business window. FAS is proud of FAPV and FASV and of contributing all capabilities to the local customer as a full service suppler. Shibata is firmly convinced that the ‘FAS Way’ was successful because in the process of implementing bottom-up procedures, solidarity and harmonious cooperation were reborn at FAS. A drawing up project was organized in 2011 by the employees who entered FAS and have been working for the organization for less than ten years. They discussed for two years what they will have to do, what they are aiming for, what is the basis of taking action and what is the FAS’s DNA. Fundamental elements consist of ‘customer first,’ ‘challenge,’ ‘kaizen,’ ‘teamwork,’ and ‘human resources development’ (FAS 2006). The ‘FAS Way; began to be implemented in 2013, but he saw in 2015 that it provided the stage for enabling the widest possible publicity. FEC received the highest Eruboshi certification mark on 28 April 2016 in recognition of its initiatives to encourage the more active participation of female employees based on the Act to Promote Women’s Participation. ‘Eruboshi’ is a composite word of ‘Eru (L) = Lady’ + ‘Boshi (sonant word of hoshi meaning stars).’ The Japanese government believes that female workers make for a brighter workplace. Of the 46 companies nationwide with Eruboshi certification, FEC is the first among the non-ferrous industries to receive the highest rating having met all the standards of the five evaluation points. This success was led by Ms. Masako Tanaka, an operating executive in the ‘corporate social responsibility (CSR) division’. FEC established a ‘Diversity Department’ in April 2014 to bring the company structure up to date, and the Department has comprehensively Case Studies on Japanese MNEs: Global Strategy 69 addressed women’s participation and promotion activities, such as female employee networking, a career development path, company-wide mind training, and so on. FEC also started to reform the working way or style for all employees, and the reforming project team has already launched that will be expected to lead to a work style innovation. The company will ardently devote further efforts to achieve both comfortable working conditions and job satisfaction for all employees regardless of gender. To conclude this description of FEC, what seems to be a special and unique organization chart in most Japanese global corporations is that a secretarial section belongs to the strategy division at FEC. The chief secretary plays an important role when it comes to strategic execution. For further information, a SWOT analysis for FEC is shown in Table 4.3.

Table 4.3 SWOT analysis (Furukawa Electric Co., Ltd.) Strengths Weaknesses Furukawa Electric 1. Most famous brand of 1. In a difficult position on Co. Ltd. non-ferrous products substantial industrial 2. Having ample human investment resources 2. Conservative corporate culture Furukawa 1. Management know- 1. Defects rate still a concern Automotive Parts hows accumulated 2. Weak capabilities of local (Vietnam) Inc. since 1986 managers 2. Sales networks established completely Opportunities Threats Furukawa Electric 1. Growth of foreign 1. Shortage of R&D workforce Co. Ltd. markets expected to 2. Current political relations increase between China, USA, and 2. New opportunities Japan related to customers and products in automotive components business Furukawa 1. Long-term economic 1. Political relations between Automotive Parts growth rate expected China and Vietnam under (Vietnam) Inc. to be more than 6% intense pressure 2. Firm growth of Japan’s 2. Wages continuing to increase FDI in Vietnam disproportionately, compared to GDP growth rate 70 K. Yamazaki

Hamamatsu Photonics K.K.

Overview of the Company: (1) Hamamatsu Photonics K.K. (hereinafter called Hamaphotonics): Hamamatsu is a city name and it is located in the geographical center of Japan. ‘HamaPhoto’ is a short name of the company in Japanese, but the businesses are not related to the manufacturing of cameras, film or any other field of photography. As such, the author will call the company Hamaphotonics. It is a research and development company looking for applications in optics and photonics. The company is seeking for the light businesses that continue eternally. It has established itself as the world’s top company for photoelectron conversion technologies. (2) It is present in eight countries, and 12 companies have operations overseas. The overseas manufacturing subsidiary is only in China. The size of product is generally small, in line with customer requirements, so that exported products are sufficient for meeting increasing demand in foreign countries. (3) Hamaphotonics has been working with in photon research for more than 50 years. It has never laid-off workers nor contracted its workforce. As the company operates as it does, employees usually have a long commitment to one division or department, which means life- long tenure. No job rotation is performed with rare exceptions across division except where an employee’s personal circumstances are an important consideration.

First let us see the consider some general information about the company. In the fiscal year that ended 30 September 2015, consolidated net sales were JY120,691 million and recurring profit was JY24,658 million. The main product lines consist of (1) ‘photomultiplier tubes,’ (2) ‘imaging devices,’ (3) ‘light sources,’ (4) ‘opto-semiconductors,’ and (5) ‘Imaging and Analyzing Systems’ (Fig. 4.2). Each business line accounts for the following sales: The level of ordinary profit to sales was 20.4% in 2015, 0.3 of a percentage point up on the previous fiscal year. The five-year average for ordinary profit to sales was 19.7%, regarded as highly profitable and one of Japan’s most impressive global companies. The company has been a listed in the first section of the Tokyo Stock Exchange since March 1998 and has JY34,928 million in capital. Case Studies on Japanese MNEs: Global Strategy 71

15% 23% (1) (2) & (3) (4) 18% 44% (5)

Fig. 4.2 Sales amount by product line

Hamaphotonics has three major laboratories, namely ‘Central research laboratory,’ ‘Industries development laboratory,’ and ‘Tsukuba (city name) research laboratory,’ that occupy 340,820m2, equivalent to 52% of the company’s total land holding. On the other hand, the manufacturing sites are 64,032m2 in total, equivalent to 10%, and research and manufacturing sites are 246,676m2, 38% of the total land holding. In terms of number of employees, 361 are working in research sites, 12% of the total workforce, 356 in manufacturing sites, or 12% of the total, and 2232 in research and manufacturing sites, or 76% of the total. This data confirms that the company is clearly driven by research and development. When the author interviewed Akira Hiruma, president and chief executive officer, he clearly explained the meaning of the slogan, ‘The photons are our businesses’ (Hamaphotonics 2016). The photon industry is a very wide realm, with much still to be discovered. Hiruma believes that the industry consists of four layers formed by an inverted triangle; the service industry using system products as a top layer, the system products manufacturer using a module as a second layer, the module supplier as a third layer, and sensor and light sources makers as the bottom layer. A key characteristic of the optical industry is that the scale of industry becomes bigger from the bottom to the top. The various uses that Hamaphotonics has not yet discovered may be developed in the 72 K. Yamazaki future. There exist possibilities such as light receiving elements, optical sources based on optical technologies, optical element products and module products used by various elements. Further, by using module products, systematic products are born, and they will expand potential markets. The company is defining an ambitious goal to have serendipity in business activity. What is important in the process of research is to have the capability to find new applications. In general, a manufacturer is thinking of ‘how’ it makes a high-quality product quickly, but the company is always pursuing ‘what’ to create when it makes a product. As the application of photonics is unlimited, the company is not employing a strategy such as integration, and does not pinpoint one development. The company works in the spirit of Kenjiro Takayanagi (Hamaphotonics 2016) by focusing on research and is developing in unknown fields. Hiruma is the third president, although the company has a history of more than sixty years. Compared with other Japanese global corporations, one president’s tenure is unusually long. Therefore, the company can attain desirable and ambitious goals without deviation and can create new optical technologies. Power generation by laser nuclear fusion is really a fantastic dream of the energy system. The material that might be used is deuterium, which is ample in the sea. The company expects a variety of applications centered on the laser, and is focusing on research and development for a high-powered laser. Evolution is always required in the company, but propelling R&D and churning out profits at the same time are the basic goal. That is why the company has adopted the divisional profit center system. Each division carries on its business like one enterprise. The division should make a profit for R&D. What is a basic requirement in the organization of the company is that sales departments are included in divisional management. However, the company set up a customer-oriented ‘sales division’ five years ago in parallel with three other product divisions for speeding up sales activities. This is a good example of the company responding to change in the business environment. The electron tube division handling photomultiplier tubes and imaging devices is doing monozukuri with a craftsman’s skill. Every merchandise has a life cycle, so that a company must eventually find a new application for it. Even if employees work in the same department, they Case Studies on Japanese MNEs: Global Strategy 73 should be challenged to take on new jobs. They are in part motivated by seeking out possibilities to change and improve themselves. New graduates will work in three divisions and the central research laboratory for one year regardless of their academic background. This is a training period, not a probationary one. They have time to consider which future work placements are suitable and favorable. After the training period ends, the human resource manager will interview them and decide the division where they will work. It is impossible for all workplaces to perfectly match demand and supply. Some new employees will work in his or her second chosen workplace. The turnover rate is very low and employees tend to work in one place until retirement age. Everybody thrives with the high level of respect associated with being a specialist. The company is made up of groups of specialists, and all employees must be research or industrial engineers. They believe in the proverb, ‘practice makes perfect.’ Consolidated net sales in 2015 fiscal year were JY120,691 million, while overseas sales were JY83,452 million, equivalent to 69% of the total in 2015 compared with 67% in the previous fiscal year. How was such a high rate of overseas business achieved? Within the ‘business headquarters’ there are three departments, planning and development, domestic sales management, and overseas sales management (OSM). Furthermore, three manufacturing divisions and OSM work together harmoniously. The OSM department is a key organization of global businesses at the company which monitor foreign subsidiaries. The department has daily communication with overseas offices and sales promotion agents, and exchanges opinions and discusses the businesses across manufacturing divisions. In most of the 12 overseas companies, local foreign presidents run the business under a relatively gentle corporate culture, although they are responsible for sales targets and profits. In which foreign countries will OSM be interested in doing business in the future? The general manager of OSM informed the author that the company is watching Australia, Brazil, China, Europe as a whole, India, Mexico, South Africa, South Korea, Taiwan, and USA. Although the company’s global share of the photomultiplier tubes (PMT) industry is about 90% including other application products of PMT, there are some other manufacturers present, such as ETEL S.A., Photonics Media Co. Inc., and Lutlron Electronics Co. Inc. (ETEL 2016). 74 K. Yamazaki

Beijing Hamamatsu Photon Techniques Inc. (called BHP hereafter) is headquartered in Beijing, China. It has a factory called ‘Photonics Industry. Base’ in Lang-Fang, located roughly midway between Beijing and Tianjin. The company was established and began operations in March 1988. Hamaphotonics bought 94% of the company’s total capital, amounting to JY200 million. The factory is about 53,000m2 in size and its rooftop area is around 26,000m2. As for BHP’s operations, Hongbin Duan is general manager of the company; there is also a factory manager and a board of directors. Norihisa Tsurumi is a vice chairman of the board of directors and a vice general manager of BHP. He is an adviser at Hamaphotonics, but is stationed there as an expatriate. The shareholders’ meeting of BHP consists of the two executives and related responsible managers at Hamaphotonics. There are seven directors and 29 key officers under Duan, and the three of them work in Beijing. About 300 men and 200 women work in Lang- Fang and the job separation rate is 0.5% and the absentee rate is 1.2%. BHP is very small compared to many other Chinese enterprises. BHP is manufacturing scintillators and glass products applied to X-ray tubes, electric light sources, quartz crucibles and so on. The latter products are sold in the domestic market and are also exported, while Hamaphotonics does not make them to sell abroad. The rate of export is about 55% of total output. All technologies except minor items have been transferred from the parent company and the general managers, and most manufacturing leaders have been trained within Hamaphotonics for a long time, where they have been able to build up their industry knowledge. The uniqueness of the factory is confirmed by the fact that there are two car drivers for the company. One of them works both as a driver and belongs to the general affairs department. Therefore, he is treated as a multi-skilled worker. The other driver belongs to the maintenance department, maintaining the company’s cars and its general machinery. BHP has been the recipient of technologies for a long time without input from its parent company, but it has been independent and match- ing up with Chinese market. Furthermore, BHP is a good partner for Hamaphotonics and is part of a special project assigned by the Japanese research institutes with the assistance of Hamaphotonics because the project is labor intensive. The research business is important for BHP, but Case Studies on Japanese MNEs: Global Strategy 75 it could not serve as a breakeven point for Hamaphotonics. As long as BHP can do it by itself, it will likely continue as a subsidiary. In this respect, Teruo Hiruma, then president at Hamaphotonics, took a decisive step. Therefore, even a leading-edge technology might be transferred successfully to BHP. The details of management transfer at the factory shall be discussed in Chap. 6. For further information, a SWOT analysis for Hamaphotonics is shown in Table 4.4.

Table 4.4 SWOT analysis (Hamamatsu Photonics) Strengths Weaknesses HAMAMATSU 1. Flexible and 1. To be perceived stable is PHOTONICS K.K. bottom-up dominant at the company. organization 2. Generalists are not 2. Value in profession nurtured through rotation. 3. Stable and firm 3. The capital turnover ratio financially is low. BEIJING HAMAMATSU 1. Possible for receiving 1. Insufficient for excellent PHOTON parent’s technologies technicians & engineers TECHNIQUES INC in all 2. More managers than ones (China) 2. Suitable human in the organizational scale resources in the good 3. High dependency on location parent company financially 3. Well-functional board of directors Opportunities Threats HAMAMATSU 1. Expecting expansion 1. Market entry by global PHOTONICS K.K. in photonics industry giant enterprise 2. Extraordinary high 2. Inexpensive substitutes potential in appearance opto-application 3. Fiercer competition by 3. Prosperous overseas development markets by strong brand BEIJING HAMAMATSU 1. To be organized as a 1. Political risk by requisition PHOTON great research in the worst case TECHNIQUES INC corporation 2. Unavailability at the time (China) 2. Expanding markets in of further employment for Shanghai and excellent technicians & Guangzhou areas engineers 3. To be an axis for 3. High tax systems to be exporting the introduced machinery to ASEAN countries 76 K. Yamazaki

Kanefusa Corporation

Overview of the Company: (1) Kanefusa is a listed company on the Tokyo and Nagoya Stock Exchanges (Second Board) as a manufacturer and seller of industrial and machine knives, sawblades, tools and machinery parts. It was established in November 1948. Before the company was created in its current form, the original business started operation as a blacksmith in 1896. (2) The industry is something of niche and is worth US$3 billion worldwide. Kanefusa has an 8% market share, putting it second globally after German company Leitz. Kanfusa set the world standard for circular saws, and its branded product called ‘FM Cold Sawblade’ has a 40% share of the world market. The company has a 25% market share in Japan and annual worldwide sales of around JY17 billion. (3) Kanefusa has seven subsidiaries overseas, and P.T. Kanefusa Indonesia and Kanefusa China Company are conducting monozukuri of products and sales. Other overseas companies are in Brazil, India, Mexico, Netherlands, and U.S.A. for sales and resharpening services. In order to achieve its target of a 10% share globally in this sub-sector, the company is considering building a third foreign monozukuri factory.

How does the president, Masato Watanabe, plan the company’s global strategy? The following is his answer at the time of interviewing him: The company philosophy was codified in 2008. Each of us, as a professional, creates new values and contributes to the manufacturing industries of the world through a creative perspective beyond our tool edge. The basic policy consists of three parts, (1) trust, (2) challenge and (3) pride. For (1), ‘We provide the trusted technology and service with customers’ viewpoints.’ For (2) ‘We give challenges to tasks only possible by Kanefusa and to be utilized later through the world market.’ For (3) ‘We strive to keep Kanefusa an honorable firm by our joint effort with respect for our co-workers.’ He encouraged employees to take a qualification test to carry out their jobs confidently. As for the proficiency test of knives technology, the holders of a first class Case Studies on Japanese MNEs: Global Strategy 77 numbered 16. Furthermore, there are six employees holding the first class in thermo-technology. In overseas factories, all associates sing in chorus together with short gymnastic exercises (Yamazaki 2012). Watanabe focuses hard on the knife business, thinking of the next research and technological developments, and imagining what might happen in the knife industry in the future. Furthermore, he mentioned that the further penetration of the Kanefusa brand is the global marketing strategy. As for market share, the company has already secured the top position in some products. Another strategy is to have mutual learning meetings or technical exchange meetings with more than 100 corporations, like Amada and the machinery division at Noritake. However, DMG MORI and Fanuc Corporation have not cooperated in this endeavor so far. Nevertheless, a circular blade knife with a cemented car- bide metal was the result of one such meeting. After he took the position of president, Watanabe urged all employees to be a trustable blacksmith. This means that the three divisions of flat knives, high precision tools and circular sawblades should strengthen their craftsmen’s skills. All three divisions, in addition to the independent marketing department, should expand their overseas businesses so as carry out the premarketing of new products. At the same time, the independent marketing department must cultivate the segment for sales before business is transferred to the division. It is a vital strategy for the president to maximize the customer’s value through the efficient work of Kanefusa’s application engineers. Extra speed and yield are needed to achieve improvements and to increase usage value. As for speed, to raise the processing speed of Kanefusa products and to decrease downtime are two elements. Concerning yield, two things are important; to reduce the defective product rate and to decrease material waste by thinner tools. Everything comes in handy when rightly used. Another functional element is well- versed sales representatives and engineers. Not only do they need knowledge of the products, but they also must understand customer needs, such as cutting materials, machines and the required quality. Furthermore, they can advise what cutting parameter is best for the customer. This is an advantage for Kanefusa even where product efficiency is the same as its competitors. All staff aim to be an application 78 K. Yamazaki engineer to sell both hardware and software in order to maximize customer value and satisfaction. Zero loan management is a virtue and part of management culture in Owari (old name of Nagoya). In 1959, the original factory located in Nagoya City suffered extensive damage as a result of Typhoon Isewan. Afterwards, the company purchased 66,000m2 of land through a bank loan. A few years later, the loan was paid off and the company adopted a policy of no further loans. In other words, the financial situation at the company has been good enough to preclude any loans since the second president of the company. The price of the product decreased by 30% compared with 30 years ago. Around 85% of the company’s sales came from the housing industry. The company participated in an international exhibition for timber held in Germany in 1991. It was a key milestone in the firm’s globalization, but yet the main business itself was exports sold through trading companies. Watanabe assumed the position of president in 2000 and globalization was accelerated as the BRICS nations emerged. The domestic market was shrinking to 1.8 million houses per year to be constructed. The company established a Moscow branch operated by three local staff. The office now has ten people, but the business is having to cope with the difficulties caused by the ruble’s depreciation. Although there is a managing director responsible for sales, including overseas business, Watanabe directs all responsible persons overseas to report to him as a rule, and decisions about investment and production expansion should come from the president after a discussion among the relevant persons at HQ. The president will decide where the most suitable site for a third production plant will be after considering various factors, including country risk. Watanabe’s instruction to the salesforce is that the customer is the most important element in every market. A key goal is to convince the customer to be quality-oriented and to be high-price purchaser. Furthermore, Watanabe is thinking of desirable customers that are: (1) outstanding companies in their industry; and (2) the companies having their synergy effects to be expected. Finally, Watanabe has suggested that the salesforce get to know and like the customer and be able to talk with him or her frankly. Case Studies on Japanese MNEs: Global Strategy 79

It is essential for overseas businesses to find a good agent. No matter what a salesmen’s ability in the English language, a person who has had a dazzling career in the domestic market should be able to carry out business in foreign countries. A salesperson who has experience in Japan would also be able execute in China. In the case of the German market, Siemens is significantly more pow- erful than other companies. The concept of ‘Buy German’ is dominant in the knives market in Germany. Fifty-five percent of total sales amount of Kanefusa Netherlands is for Siemens. Regarding M&A activity required for the acceleration of growth, Watanabe believes that there is nothing to learn by acquiring companies in the same industry in different countries. Even after acquisition, it takes a lot of time to be implement the Kanefusa way of management. Watanabe is not prepared to spend such time. If an acquisition is related to parts companies, this will be of interest to him. Through his experience, Watanabe is indifferent to M&A activity. In fact, some problems occurred for the company as a result of an M&A in Bulgaria. As for human resources, Watanabe is not overly concerned because the company has sufficient staff to carry its the global strategy. Further, as there is a training program to be executed, no problems usually occur in either the mid- or long-term. For example, young employees are sent to Kanefusa Europe for training as part of a fourth trial, and to Kanefusa USA as part of a third trial. These personnel are working as well, enables them to be either a sales engineer or a generalist. The president acknowledges that young employees are often keen to work overseas. For the time being, the target is for overseas sales to be 80% of total sales, and an even higher figure would be acceptable because the profit ratio of overseas sales is not lower than its domestic counterpart. What the president is interested in with respect to the global market are the following; (1) India and Asia, including China (2) Europe (3) Latin America and (4) Sub-Saharan countries, including South Africa. He expects India to be the biggest global market in the foreseeable future and is positive about the prospective markets of Central and Northern Europe. 80 K. Yamazaki

In order to respond to the needs of customers and to accelerate marketing, two sales offices have been set up, one in Moscow, Russia, under Kanefusa Europe and another in Atlanta, under Kanefusa USA. As for Brazil, Kanefusa Brazil was headquartered in Sao Paulo and set up a branch in Santa Catarina. The Kanefusa brand has been penetrating into the Brazilian market, especially blades for plied woods, but the market in Brazil must be watchful closely given frequent changes in the local tax system. Kanefusa Indonesia has employed Indra Malela who speaks Japanese fluently so that he can help the expatriate general manager in the factory to work more effectively. Kanefusa Indonesia celebrated its 30 year anni- versary in 2016. Kanefusa has occupied the top position in the Southeast Asian market and increased its market share due to the closure of a competitor. The company has constructed a second factory, which is state-of- the-art, so that the first factory can concentrated on the production of knives. Many listed companies have their headquarters in Singapore, but Kanefusa has its regional base in Jakarta, Indonesia. Let us see how Kanefusa Indonesia acts effectively as a vehicle for production and marketing and sales. The first factory is 20,000m2 in size and manufactures a flat knife. Of 390 employees, 320 work in the factory, 50 are in sales, and 20 are in administration. Although the company was established in 1986 with a capital base of US$800,000, the average age is under 25-years-old. The company has experienced a major strike in the past, resulting in the departure of 167 employees. After this, the company grew, with a 98% attendance rate and a turnover rate of less than 2%. The sales and marketing department in Kanefusa Indonesia has three sections, domestic sales, export-import (EXIM), and a technical service. In the EXIM section, two young Japanese expatriates travel abroad frequently in the Southeast Asia region supervised by Masato Toba, a general manager in sales and marketing, and the president, Jinkichi Takasu. Four expatriates hold a strategic marketing meeting periodically, and sometimes Shuji Tanimoto, a vice president mainly responsible for production, and Malela, join the meeting. Case Studies on Japanese MNEs: Global Strategy 81

The first factory shift begins at 8:00, and ends at 17:00, with prayer and lunch time from 12:00pm to 12:45pm and 15:45 to 16:00 for a rest break. Past experience of three alternative shifts made the management change to two alternative shifts with overtime for 24-hour work because of production efficiency. There are two categories of workers in the factory, a regular and a contractor, and they are identified by their hats. If the worker wears a yellow hat, he or she is a contractor or a non-regular, whilst a regular worker wears a green hat. A green hat with one circular line means the person is a team leader, a hat with two lines signifies group leader, and a hat with a bold line means a manager. Half of the contractors who join the company fail the examination held at the end of a one-year term. The half that passes proceeds to become a regular employee. Most of the workers commute to the factory by motorcycle and get a transportation allowance of Rp30,800 per day. The factory produces around 28,500 pieces for the blades for plied woods, 132,000 pieces for a chipper knife, and 70,000 pieces for a circular bladed, which are transported to the second factory nearby. At the time the first factory will add the double capacity of chipper knife production. Forty percent of the products are exported to Japan, the ASEAN countries, Europe, USA and Latin America. In 2014, the company held a 50% market share in Indonesia. A variety of small group activities are carried out in the first factory, such as ‘5S Kaizen activity’, ‘Kiken Yochi Training (KYT)’ and ‘Quality Control Circles.’ Five Japanese words beginning with ‘S’ are integral in the factory. Take ‘Seiri’ as an example. Its meaning is ‘to set in order’ and it is written as ‘Membuang Barang Yang Sudah Tidak Diperlukan’ in Indonesian. In the same manner, four other words are translated into Indonesian and one page containing ‘5S’ is distributed to all employees. There is a ‘5S team’ which consists of seven people selected from the shop floor. This team makes a one-hour tour of inspection of the factory every Tuesday and Thursday. The team notes down kaizen ideas that are implemented later. Kiken means danger and/or risk, and Yochi is to foresee. As such, KYT is a type of training to foresee dangers and risks in the factory. This is 82 K. Yamazaki carried out by every team and takes one hour per month; the results are notified to all workers. The final activity is a short form of ‘Quality Control Circle’ that is not directly connected with the quality of products. One group consisting of staff from quality assurance, production, and engineering meets for one hour twice a month. The management would like to expand this activity throughout the factory. Overall management styles in the factory are analyzed by their application score, reported in Chap. 5. Kanefusa’s global strategy is summarized in the SWOT analysis (Kanefusa) in Table 4.5.

Table 4.5 SWOT analysis (Kanefusa) Strengths Weaknesses Kanefusa 1. Strong brand worldwide 1. Harmful effects in the Corporation 2. Top share in Japan for long traditional company are years because of excellent seen. capability of product 2. The ratio of ordinary profit development to sales is low comparably 3. The ratio of ordinary profit as a top share enterprise. to sales has increased yearly 3. The young employees are since 2011. stratified in lack of depth. P.T. Kanefusa 1. Management know-hows 1. Defects rate cannot be Indonesia have been accumulated controlled by ppm. since 1986. 2. Local managers capabilities 2. Sales networks are are still weak. established completely. Opportunities Threats Kanefusa 1. Growth of foreign markets 1. The progress for cutting Corporation expects increasing. method without using 2. Existing production bases in knives and sawblades China and Indonesia are 2. Upgrading quality and low considered to continue price strategy for Chinese growing. manufacturers P.T. Kanefusa 1. Economic growth rate 1. Reappearance for labor Indonesia expects to be more than 5% disputes for long term 2. Chinese makers’ 2. Joko Widodo government production are enriched in expects to be stable long Indonesia 3. Japan’s foreign investment 3. Wages continue increasing there continues firmly bigger than GDP growth rate Case Studies on Japanese MNEs: Global Strategy 83

Komatsu Ltd.

Overview of the Company: (1) Komatsu Ltd. (hereafter called ‘Komatsu’) is the benchmark monozukuri model in the construction machinery business. The company is in the business of construction and mining equipment, industrial machinery, vehicles, logistics, electronics and other solution-based operations. In 2015, Komatsu decided to supply as the products and their service called ‘smart-construction’ utilizing advanced information communication technology (ICT) and its application in KomConnect (Komatsu 2017) in the world. In financial year (FY) 2015, the segment of construction, mining and utility equipment accounted for 88% of the company’s total sales, with remaining sales made up of industrial machinery and other products such as stamping machines for the automobile industry. (2) Komatsu was established in 1921, starting production at its Komatsu Plant (closed in 2009) in Ishikawa Prefecture. It has operations in 21 countries and operates 48 manufacturing plants of construction equipment across the world, nine of them being so-called ‘mother plants,’ or ‘mother factories.’ They are generally used as management transfer terms and mean main factories having accumulated techniques within the company. Such a factory (the mother) transfers technologies and know-how to foreign subsidiaries (children), especially when start-ups are being established. Komatsu Ltd. however defines the mother plant explicitly as the global production center, possessing various functions, including product development, strengthening competitiveness, and lowering costs during times of rapid change as well as offering training to the rest of the company. There are four mother plants in Japan and one in USA. The first foreign direct investment (FDI) in production began at ‘Komatsu do Brasil’ in 1975, the company’s first plant outside Japan. The company competes closely with Caterpillar Inc. In fiscal year 2015, Komatsu earned JY1855 billion in sales, with JY209 billion in profits, and a return on equity of 9%. The share of construction and mining equipment produced overseas amounted to 55% of the total in 2015 compared to 52% in the previous year. The ratio of the total 84 K. Yamazaki

sales of construction and mining equipment produced overseas against total foreign sales amount in Komatsu Limited was also up to 68% from 64%, which means ‘out to out’ businesses became predominant in the global company. (3) The ‘Komatsu Way’ (Komatsu 2017) is based on the monozukuri culture which has been cultivated since the company was established on 13 May 1921. It was adopted as a formal corporate strategy in the 1990s. ‘Komatsu Way’ is a statement of values that all workers in the Komatsu Group including those at every level of management should pass down in their workplaces. Komatsu people, especially the factory employee, observe it as a rule in the monozukuri process. Two subsidiaries, Komatsu Forklift Co., Ltd. (Japan) and Komatsu Shantui Construction Machinery Co., Ltd. (China), have been awarded the Deming Prize. The former was awarded in 1980, the latter in 2013 and was the second awarded to a company in China; it was given in recognition of the Total Quality Management (TQM) activities began in 2010. In the Komatsu Group, there are 47,017 employees across 141 consolidated enterprise in addition to 10,449 people for the non-consolidated in the world as of 31 March 2016.

Construction and mining machinery sales, including forklift, amounted to JY1.76 trillion out of JY1.98 trillion of total sales in fiscal year 2014, and decreased to JY1.64 trillion out of J1.85 trillion in fiscal year 2015. The rest of the company’s businesses are industrial machinery such as large press systems, sheet-metal transfer machinery, excimer lasers, and others. The profit rate of the rest of the company business is about three percent, lower than that of construction and mining machinery. The company emphasizes profit rates rather than market shares. As for industrial machinery and other businesses, the share of sales is usually around 10% of total sales. This is not a result of deliberate corporate strategic. Large transfer presses for a stamping machine are only made by three companies in the world. This machine has been made by Komatsu since its establishment. As long as there is demand for the product, Komatsu will manufacture it somewhere in the world. Demand for and sales of construction machinery were affected by population changes and urbanization which impacted the rate of house Case Studies on Japanese MNEs: Global Strategy 85

construction. Prospective demand was also related to conditions in across the global economy, in particular four major markets. One of them was North America. Demand was steady in 2014 there because of a weakening oil price. The others were markets in Europe, in China and in Japan. Europe looked strong of demand and no expectation ever-lasting demand in China because of price-downing natural resource. In Japan, there had been constant recon- struction demand following The Great Eastern Japan Earthquake of 2011. The demand looked firm going forward because of the Olympic Games in Tokyo in 2020, although there were worries about labor shortages. How does Tetsuji Ohashi, president and CEO, manage the construction machinery company efficiently? The following is a summary of the author’s interview with him. “Interview with President” is one of Ohashi’s managerial communication methods, and it has been held quarterly since 2006. The theme is usually about the company’s results, but can also cover other topics. He notes that it is highly appreciated by stockholders and investors. Although it requires a lot of time input on his part, Ohashi thinks it is his job to carry out this function effectively. Inside the company, the president visits all the factories and branches across the world every year. He likes to talk to employees directly, instead of through the “Interview with president”, which is reserved for communicating to external parties. One of the business approaches is ‘Dantotsu products, service, and solution.’ The worldwide workforce is able to understand the Dantotsu and to use it in their daily conversations. Dantotsu means far and away the most or best generally in Japan, but in Komatsu Ltd. Dantotsu is equivalent to unique and unrivaled. Ohashi has emphasized that Dantotsu products are ones that no competitors can imitate for several years. Ohashi thinks that every Japanese company should carry out a similar policy to Komatsu’s Dantotsu. He makes it a rule to visit important factories and centers twice a year. In addition, he visits other key factories and sales offices overseas periodically. He likes to attend casual meetings so as to exchange opinions frankly and to nurture unity in the organization. The company has emphasized its focus on Dantotsu. Take the ‘Dantotsu Solution’ for example. The company recommended the autonomous haulage system. The customer adopted the Dantotsu if the operating site is fit for purpose. The construction machine is generally guaranteed for 86 K. Yamazaki one year, but usually another four years of use is guaranteed. After five years the company will propose the overhaul of the machine, and the customer would usually trade in old machines for new machines after ten years. Meanwhile, the machines are maintained hourly. The brand of ‘Komatsu Care’ means one of the services. In USA, there is a regulation called ‘Tier 4 Final Emissions Regulations’ to be met by the company. If it fails, no business can be conducted. ‘Dantotsu Products’ is designed to comply with new emission standards, which have been introduced steadily not only in North America but also Japan and Europe since 2014. Komatsu has developed a total of 33 models and worked to expand sales of these models. Another approach for Dantotsu solution is ‘Smart Construction’. Smart Construction shave a slope face at a riverside and on housing land. The engineering experience required is ten years in the field, but the Smart Construction machine can reduce this to one year. The construction job site in general is called the place of 3Ks; Kitsui, Kitanai, and Kiken in Japanese. In English, this translates as 3Ds; Demanding, Dirty, and Dangerous. In Japan, a declining birth rate means that youngsters are not seeking out 3K jobs. On the other hand, an alliance between Komatsu and GE Corporation is concerned with mining machinery. The machine operation status, fuel consumption data, and maintenance information gathered at the mining site are inputted at the global center. The alliance with GE is about software in the mining machines, not industrial machinery per se. The KOMTRAX system is the first in the world introduced in 1998 in the field of communication networks between the center and active construction machines onsite. Around 40,000 machines operating across the world have built-in sensors. By using GPS, all of these machines are capable of being tracked. GE’s big data analysis means Komatsu’s machines have improved their fuel efficiency by 13%. At the mining site, the machine is regarded as a fixed cost, making it somewhat of a burden in terms of initial investment cost. The question is how to minimize labor cost and fuel cost, especially fuel used. A 13% fuel improvement contributes to a more rapid payback of money invested. Furthermore, if three or more of the same machines are operating at one site, it is easier to decide maintenance procedures through Computer Integrated Manufacturing (CIM). Case Studies on Japanese MNEs: Global Strategy 87

As for Caterpillar Inc., Ohashi notes that they are a strong competitor and Komatsu learns a lot from them. Hisashi Shinozuka, director, senior executive officer and president of the Construction and Mining Equipment Marketing Division, has analyzed the competitor in detail. Caterpillar’s sales are more than 2.5 times those of Komatsu. However, in fiscal year 2014, Caterpillar’s profit rate as a percentage of total sales was 7.1%, lower than 12.9% at Komatsu. This kind of difference in profit rate has been maintained for the past few years. Regarding the market-by-market analysis, Caterpillar is comfortably ahead in in North America, while Komatsu accounts for around a 50% market share in Asia, including China and Japan. In the Middle East, Africa, and the Commonwealth of Independent States, Komatsu vies for the top spot. Although Caterpillar has further more sales than Komatsu in Europe, Caterpillar is not the highest company in sales, while Komatsu is the lowest supplier by its area analysis. One of the reasons for this is that many European countries have their own domestic manufacturers, such as Volvo in Sweden. As a result of developing local agencies, Komatsu competes well against Caterpillar in the Middle East. Specifically speaking Komatsu is ahead of Caterpillar in Turkey, Oman and Saudi Arabia, the three countries where Caterpillar had been predominant up to 2012. Komatsu will nevertheless remain cautious in the Middle East when observing compliance and political risk, as well as terrorist activity. As a distributors deal with sales, repairs, rebuilding and general services for Komatsu products, there is a need to strengthen the service system. Komatsu has more than 2400 distributors across the world. The competitiveness of the construction machine business depends on distributors’ capabilities, especially in terms of repairs and rebuilding. In the same manner, some of the differences between Caterpillar and Komatsu are attributable to distributor power. Komatsu assists its distributor through management. Even if the price of a machine, for example, is higher than others by, say, 20%, the customer will be satisfied with the manufacturer if the productivity of the machine is over 20%. Komatsu has invested directly by area of the world. In some cases, the sogoshosha (a large trading company) will invest in a distributor together with Komatsu. Take the case of Australia, where Mitsui & Co. bought 40% of the distributor. It also invested in distributors in Peru and some distributors in 88 K. Yamazaki

USA. Furthermore, Sumitomo Corporation invested partly in distributors in Canada and Saudi Arabia. Meanwhile, Caterpillar is often a prominent local investor, and it has built up relationships of trust and established excellent rapport with their distributors for, in some cases, more than one hundred years. Half of the global business in the construction and mining machines sector are sold to a rental company through a trade-in and resale. The life of construction and mining machines is usually 10 to 20 years. During these years, the ownership of a machine may change many times. Komatsu has its own rental company called Komatsu Rental Ltd. In addition, the ‘Rental & Remarketing Planning Department’, which is located in the headquarters, oversees the whole life of a machine. As for the Komatsu rental system called DORF in USA, the distributor enters a rental agreement with the customer who is a user of the machine and then the customer can buy the machine after two years of use. This system started 30 years ago, and it has worked well. In USA, the ratio of the rental among the total sales was 10% compared with 60% in Japan and 40% in Europe. After the DORF system was introduced, sales went up. Furthermore, Komatsu would help to finance prospective customers by providing them with money with which they could purchase the machine. Ohashi noted that Komatsu would like to increase sales across the world. As a global marketing approach, the company employs a ‘Quad Strategy’ that is focused on North America, Europe including the CIS, Asia including China, and Japan. Table 4.6 shows how regional sales have changed across the three years from fiscal year 2013 to fiscal year 2015 in the construction, mining and utility equipment sectors. The 70 to 80% of top management at overseas subsidiaries are not Japanese expatriates. The needs of human resources in foreign operations must be nurtured at the location. If the subsidiaries request Japanese expatriates for top management, headquarters will send them to overseas subsidiaries that have profit responsibilities. The top management would meet Shinozuka three times a year in the case of Komatsu Europe and Komatsu USA and in the case of other areas, responsible persons twice a year. In all cases, Shinozuka himself would visit the subsidiaries once a year to see how they were operating. It is the headquarters that determines Case Studies on Japanese MNEs: Global Strategy 89

Table 4.6 Sales breakdown of construction, mining and utility equipment by region 2013 2014 2015 % in total % in total % in total Japan 20 19 19 North America 16 19 24 Europe including CIS 11 11 12 Latin America 15 15 13 Asia including China 20 18 16 Oceania 9 8 7 Middle East 3 3 4 Africa 6 6 5 100 100 100 policy and strategy, and conveys this to the subsidiaries in Komatsu. Before this, however, all related parties hold discussions since the top management at subsidiaries will have their own ideas. When he calls an onsite meeting, the chief directors related to development, production and sales also attend. The meeting consists of a so-called ‘management committee’ which can make instant decisions except for the items to be deliberated upon by the board at headquarters. In addition to local meetings with Shinozuka, a ‘Global Executive Meeting’ is held once a year. Ohashi and all managing directors attend the meeting and their speeches are translated simultaneously so that the meeting is efficient and effective. The successor applicants for the next generation of senior employees in overseas operations also attend as observers. The ‘Construction & Mining Equipment Marketing Division’ has its own human resources section called the ‘Department for Promotion of Distributor HR Development’, with the aim of nurturing employees in distributors across the world. In the case of overseas distributors, the first thing to do is to call the trainers at the overseas companies to come to Japan, and then to offer training. Afterwards, they will return to their local companies to train subordinates onsite. Training documentation is prepared in Japan and written in English; it is translated into local languages if necessary. There is a worldwide training center in Thailand, but Shinozuka would like to establish more centers in the main countries in which the company operates. 90 K. Yamazaki

In Africa, company strategy is controlled by individual countries in the North Africa and Central Africa regions in addition to management by suzerain states. Thus Komatsu Belgium takes care of 17 non-English- speaking countries, mostly under French suzerainty, Komatsu Canada controls the markets in English suzerainty and Komatsu Europe looks after Angola influenced by Portugal. For these countries, mining machinery is an important business with an emphasis on safety, and because of long historical ties with suzerain states and the operations of European mining companies, European manufacturers are dominant in the market. On the other hand, the market in South Africa is similar to the one in USA and Japan, and so the company is operating a rental business. Since Komatsu has a good sales, repair, rebuild and general service, it is more or less equal to Caterpillar in terms of market share in South Africa. As for global operations, senior management makes decisions based on the feasibility of investing in manufacturing plant in foreign countries. The Russian plant is a good example of their decision. Ohashi himself believes that a mid- and long-term global strategy is essential, passing this sentiment on to the division manager. Regarding personnel changes for general managers of overseas subsidiaries and offices, human resource managers would first discuss this with the relevant managers and then report to the president. Finally, the appointment was authorized or turned down by the president. As for an acquisition Ohashi is a decision maker, but he discusses fully with the general managers of the related business because after acquisition the business unit will assume responsibility. The following decision taken in 2016 exemplifies the decision-making process. Komatsu signed an agreement with Joy Global Inc., listed on the New York Stock Exchange. Komatsu America Corp. – which has its head office in Illinois, USA, with Rodney Schrader as its chairman and CEO – is a wholly- owned subsidiary of Komatsu in the USA. It acquired 100% ownership of Joy Global for JY303.6 billion. Joy Global is a worldwide mining machinery and services company founded in 1884. It manufactures advanced original equipment and provides its services and parts for underground and surface mining applications, as well as material-handling systems and components for a variety of applications, products that com- Case Studies on Japanese MNEs: Global Strategy 91 plement those of Komatsu. The acquisition allows Komatsu to offer Dantotsu products to customers in both surface mining and underground mining businesses. Data obtained from IoT (Internet of Things)-based mining equipment and systems would be connected and used through the open platform of Komatsu and this would result in synergies in terms of providing Dantotsu solutions to customers. The author visited Komatsu Shantui Construction Machinery Co. Ltd., otherwise known as KSC, in Jining, Shandong Province, and its group operation in October 2015. Komatsu (Shandong) Construction Machinery Co., Ltd., called KSD, Komatsu Undercarriage China Corp. called KUCC, Daikyo Machinery Shandong Co., Ltd. are consisted of one of the Komatsu business suppliers. KSD merged with KUCC in December 2015. The presidents of KSC and KSD and its general managers, were Chinese, and Japanese expatriates acting as deputy general managers ran the company smoothly alongside them. The basic idea at Komatsu is that it manufacture a machine in the country where it machine is to be used. KSC has manufactured a mid- sized hydraulic excavator and it also has provided sheet metal components at Komatsu across the world, while KSD takes care of small-sized excavators. KSC is also manufacturing functional parts such as cylinders, a traveling motor, cast steel, and a super large dump truck. Komatsu has 33 agencies in China, and one or two agencies in every province dealing with sales and maintenance. KSC was established in July 1995 with US$ 21 million, with Chinese capital making up 30% of the total. The company is the largest manufacturing factory among three Komatsu operations in China and has been playing a role of the mother factory. As for mining machinery, Komatsu (China) Mining Ltd., called KCCM, is located in Changzhou City in the province of Jiangsu. KSC has two factories with a ground area of 276,000m2 and a building area of 66,600m2. Eleven suppliers are located within 10 kilometers and 22 non-Komatsu keiretsu suppliers cooperate with each other. Half of the company’s production materials are purchased from suppliers in Jining, and 16% from other areas in China, so that the local content rate (as measured by purchasing cost) was 64% in 2013, compared with 47% in 2003. As a result of TQM 92 K. Yamazaki activities conducted since June 2010, a Deming Award was given to KSC in 2013. KSC is the second Chinese company to be awarded the Deming Prize. On the shop floor, the marshalling system works well for the handling of materials. A total of 4700 candidates took the entrance examination from 2011 to 2014, with 1800 passing; 1300 employees are trained every year. As for job classification, there are seven categories, the highest being the person who has worked for 12 to 15 years after passing the entrance examination. A manager meeting is held as a form of consensus building twice a month, and to confirm decisions among all managers. Top management reports to all employees once a year. The number of employees was 974 (14 Japanese expatriates) in 2011, declining to 834 (6) in 2014. The size of the workforce would fluctuate up and down during ten years since 1995 as adapting to the volume of Chinese market. The company has working hours from 8:00 to 16:30 for the first shift with a lunch break at 12:00 to 12:45. Before beginning work, all shop floor workers gather round group managers at 7:50 for gymnastic exercises and 7:55 for an informal meeting. At peak operation, the company was able to manufacture 60 construction machines, but only 3 machines per day in 2015. As KSC lowered production, KSD’s operation volume in 2015 was one-third of what it was in 2010. KSD stopped manufacturing forklifts in 2011. Although the operation was worsening, the company had implemented excellent ‘Career Development Courses’; (1) Seven- month (April to October) programs at Shandon Commerce University for three persons a year, (2) Three-year program at Graduate School, University of Osaka, for one person every three years, with the person then working in the quality assurance department for three years, (3) Training at Technology Dojo called Takuminomori (literally, the forest of experts) in Japan for some skilled workers in order to strengthen Gemba power, technological skills, and their skills transmission, (4) A program called Optimal X to send young technical staff to Productivity Inc. in Japan. Daikyo Machinery Shandong Co., Ltd. supplies cabs for Komatsu’s construction machines. The company began production in 2008 and has Case Studies on Japanese MNEs: Global Strategy 93 a capacity of 40,000 cabs per year. They are practicing 6S activities, 5S (Seiri, Seiton, Seiso, Seiketsu, Shitsuke) and Sahou. Although the demands for construction machinery in China declined greatly in 2015, all Komatsu companies coped with this downturn. Overall management styles in the factory are analyzed by their application score and recorded in Chap. 6. A SWOT analysis for Komatsu is shown in Table 4.7.

Table 4.7 SWOT analysis (Komatsu) Strengths Weaknesses Komatsu 1. Consistency of 1. Quad strategy in monozukuri stance, marketing not yet based on Komatsu Way completed 2. Top dantotsu share in 2. Firm dealership systems Japan for many years overseas not yet fully due to excellent established product development capabilities Komatsu (Shan Domg) 1. Possibility of receiving 1. Insufficient expert Construction parent’s technologies engineers and Machinery Co., Ltd. and monozukuri technicians know-hows 2. High dependency on 2. Well-coordinated parent company board of directors financially comprising Chinese and Japanese expatriate Opportunities Threats Komatsu 1. Growth of foreign 1. Political risks may markets expected to influence markets in increase China and USA 2. Market for high-end 2. Upgrading quality and construction low-price strategy for machinery expanding Chinese manufacturers .in developed countries Komatsu (Shan Domg) 1. Expanding the markets 1. Political risk by Construction in Shanghai and requisition in the worst Machinery Co., Ltd. Guangzhou areas case 2. To be an axis for 2. High tax systems to be exporting the introduced machinery to ASEAN countries 94 K. Yamazaki

Mabuchi Motor Co., Ltd.

Overview of the Company: (1) Mabuchi Motor Co., Ltd. (hereafter called Mabuchi) has been listed in the first section of the Tokyo Stock Exchange since 1988, and is headquartered in Matsudo City, Chiba Prefecture, Japan. It takes one and half hours by train to reach Matsudo from Tokyo. All functions of management in the Mabuchi organization have been concentrated and integrated into the headquarters. The building and its surround- ings are magnificent. The business is focused on only one product, a small direct current electric motor. Kenichi Mabuchi (1922–2005) designed the world’s first horse-shaped magnetic motor in 1945. In 1954, Kenichi and his brother Takaichi set up a workshop within a toy company to begin production of small electric motors under the name of Tokyo Science Industrial Company for the Japanese toy industry. (2) Mabuchi has JY20,704 million paid-in capital, and as of 2016 the number of employees in Japan totaled 781 and 23,768 overseas. The company has consistently established its superior business model of ‘out to out and out to in’ based on a ‘Transnational Strategy.’ The company has continued this approach, without any production taking place in Japan, since the mid-1980s. Consolidated net sales were JY143,143 million in 2015 up by 16.8% on the previous fiscal year. Operating income was JY22,961 and net income JY18,546 million, up by 36.1% and 2.5% respectively. Sales analysis by market segment shows that consumer and industrial products make up 32.7% while automotive products such as for power window lifters, power seats and electric parking brakes make up 67.3%. (3) Mabuchi has invested in 19 subsidiaries overseas in across nine countries up to the year 2016. The first overseas factory was established in Kowloon, Hong Kong (HK), in 1964, followed by a factory in Taipei, Taiwan in 1969. The company’s investment in Taiwan continued at Hsinchu in 1969 and Kaohsiung in 1979. From the beginning of the 1980s, Mabuchi focused on manufacturing in China because of lower Case Studies on Japanese MNEs: Global Strategy 95

labor costs and lingual advantages. It was rare that Japanese MNEs invested 100% capital, not by joint venture with Chinese enterprises at the time. A factory was completed in Dalian, China, in 1987 (Yamazaki 2012). Much later on, Mabuchi concentrated on monozukuri investments in China; Jiangsu Mabuchi, Dongguan Mabuchi, Wafangdian Mabuchi, Jiangxi Mabuchi, Daojiao Mabuchi, and Ludong Mabuchi. Entering the twenty-first century, the Mabuchi monozukuri strategy seemed to have changed from unipolar concen- tration in China to China plus Vietnam. Mabuchi Motor Vietnam Ltd started manufacturing in 1996, followed by Danang Mabuchi in 2005. Two production factories in Vietnam now appear to exceed total output in China. Other than ones in Asia, Mabuchi monozukuri extended to Mexico in 2014.

Mabuchi is partly a family-owned company. The ex-chairman Takaichi Mabuchi holds 7.3% percent of its stock. In addition, Takashi Mabuchi holds 3.0% and Tamotsu Mabuchi also has 3.0%, so that the Mabuchi family holds 13.3% of the total issued stock. Takaichi Mabuchi (hereafter called T. Mabuchi), then chairman, was interviewed in 2013. He had an early enthusiasm for developing offshore production capabilities. In 1964, the company took steps to establish operations in Hong Kong because of lower production costs. As the Japanese Yen was subsequently strong and the cost competitiveness of production in Hong Kong and Taiwan was declining, Mabuchi decided to manufacturing in China in 1986. As a result, the business model of out-in and out-out having been established, lower production costs in China meant higher profits. Dalian Mabuchi has made a significant effort to standardize its products and to raise production efficiency and cost competitiveness. Further, these products were imported into Japan, having been purchased by the head office, helping to boost profits as a result of currency movements. In the case of out-out business trading in a currency other than the Yen there are no currency exchange effects, meaning that profits come solely from production. The company’s first mission statement that T. Mabuchi was involved in was issued in 1971 and was on contributing to international society. How to contribute is stipulated by four action guidelines as follows; 96 K. Yamazaki

(1) To supply better products and less expensive products, thereby contributing to the realization of a prosperous society and a more pleasant life, (2) To supply major employment opportunities in foreign countries and technological transfer and then to contribute to their economic development and to closing gaps in economic welfare across the world, (3) To set human resources as the most important element in management, and then to activate human capabilities and to nurture these, (4) To continue corporate activities so as to not sacrifice the global environment and public health. Mabuchi’s management philosophy is based on the assumption that all people are essentially the same, having similar needs and wants. Furthermore, every person has strengths that must be encouraged and utilized by managers. There is a great respect for hierarchy and authority. Throughout its history, Mabuchi’s head office always had firm control of the activities of its subsidiaries in setting standards for both product quality and work practices. The main characteristics of Mabuchi’s strategy were the diversification of both production bases and markets, the maintenance of high quality, product standardization and the minimization of production costs. Mabuchi also believed that, tactically, it was very important to move quickly once an opportunity emerged. In other words, a rapid response to market opportunities could enhance competitive advantage which could mean lower prices for customers. Mabuchi was always concerned with diversification of both markets and production locations. If the company responds to market diversification, the demand cycle of these market segments is generally different, so that the advantage of diversification becomes more effective going forward. Production facilities were established in different places in China corresponding to the vast expansion of automobile businesses in China. This was executed by the company’s strategy as close as where the customers began manufacturing in China. Regarding quality, the primary method of maintaining quality control was to ensure that all operations adhered to the standards set by the head office at the technical research institute. The institute functions as the location of advanced development of products and technologies in production. Such methods were developed over years of experience with new Case Studies on Japanese MNEs: Global Strategy 97 methods also being tested there. One of the many roles of expatriate managers was to ensure that the methods of production designed in Japan were mirrored in the foreign production facilities. Technical service and the management of the international network of subsidiaries were cen- trally located and, once a new product or work practice was devised, it was introduced to Mabuchi affiliates as quickly as possible by personnel based in head office. The various plants were expected to attempt to implement as closely as possible the patterns and processes devised at headquarters. As a result, the quality level in all factories is less than three ppm. As T. Mabuchi has stated, Mabuchi endeavored to maximize its competitiveness by minimizing its labor costs, making its work practices more efficient, reducing the variety of products offered, and streamlining its administration. Mabuchi offered tailor-made products to satisfy increasing customer needs. Five million products per day were manufactured by not more than 25 models. The 55 percent of total sales seem to be consisted of ten models, so as to monozukuri as few models as possible. In a nutshell, excellent products were developed and presented to major customers who accepted them willingly. As for labor cost, since the product itself is labor-intensive, one of the key competitive considerations was the relative cost of labor. In 1964, labor costs in Hong Kong (hereafter HK) were lower than in Japan. There were other reasons why the company invested in HK as its first overseas operation. Although Mabuchi was dominant in market share, Johnson Electric (hereafter called JEI) was the major competitor headquartered in HK. At the time, JEI expanded its production in HK, and Mabuchi had to compete with JEI to meet customer demand. Further, Mabuchi wanted the advantage of having the Preferential Tariff by the Commonwealth. By 1991, all of Mabuchi’s production capabilities had been shifted outside Japan to take advantage of low cost labor available in other East Asian countries. Mabuchi was forced to begin realigning its production distribution away from HK and Taiwan in order to stay cost competitive. Rather than abandoning these high-cost facilities, however, the sites that were experiencing increasing costs of labor were made to change their focus, concentrating instead on higher value-added operations, such as the fabrication and maintenance of production equipment for other plants. 98 K. Yamazaki

In 1971, Mabuchi reorganized its administration of marketing and production to concentrate responsibility for these functions in the head office. Beginning in the early 1990s, the firm began to try to shift many of these responsibilities back to the individual subsidiaries. Mabuchi encouraged subsidiary managers to communicate directly with their counterparts in other subsidiaries in an effort to attain greater corporate- wide administrative effectiveness and operational efficiency. Mr. T. Mabuchi a company’s compares employees taken as a whole to the engine of a ship while managers together to the steering wheel of the ship. He urges Mabuchi people to pass on his management motto of not shifting the strain or burden onto customers, associates, cooperative enterprises, stockholders, or other stakeholders, such as regional societies and states. Let’s look at the example of overseas operations in Vietnam. Mabuchi Motor Vietnam Ltd. (hereafter called VNM) is located at Bien Hoa II industrial zone, Bien Hoa, Dong Nai Province. It is a one hour drive and 25 kilometers north-east of Ho Chi Minh City, the largest city in Vietnam. The author interviewed Tomofumi Imamura who was then general director at VNM on 12 February 2014. His career is a stellar one, including higher education in USA and experience in a consulting firm before joining Mabuchi in 2011. A bird’s eye view of VNM is as follows. It was established in February 1996 and started operations in May 1997. Its registered capital was VND439,737 million, equivalent to US$21 million, and Mabuchi sub- scribed 100% of its capital. There were 5720 employees at the end of 2013, who produced 440 million small direct current motors. The land area of VNM is 64,000 square meters and has two-story buildings of 68,000 square meters’ floor area. In 2013, 31% of VNM’s products were exported to Europe, 14% to USA and 55% to Asia 55%. Total production increased from 85 million in 1999 to 440 million in 2013, declining only in 2009, by 32%, due to the global economic downturn. Eight Japanese expatriates were working at VNM as of December 2013. Around 80% of VNM products are automobile components, 14% are for audio appliances, and 6% are for print- ing machines and others. As for the global management system, the company has been certified ISO 9000 since 1999, by ISO 14000 since Case Studies on Japanese MNEs: Global Strategy 99

2001, and by TS 1694918 since 2005. TS stands for ‘Technical Specification’ and ISO/TS 16949 stipulates the technical specification of quality management for the automobile industry. The present version was established in 2013 as ISO/TS 16949:2009. The formal name of the specification is “Quality management systems-Particular requirements for the application of ISO 9001:2008 for automotive production and relevant service part organizations.” Other company rules and regulations in management appear to be controlled by headquarters. Some activities for increasing employee consciousness of participation have been implemented:

(1) The QC circle is activated across all shop floors, and their results are reported at a main meeting from time to time. Some excellent cases are rewarded with applause at the meeting. The rewarded cases are implemented across VNM quickly and horizontally. (2) Kaizen proposal activities consist of proposals for technical know- how or improvement in daily jobs. There are usually more than 200 to 300 suggestions every year and some are rewarded in an annual VNM meeting. (3) Environmental protection activities by employees include parading slogans, fitting mottos and putting up posters in areas near to VNM’s buildings. At the end of the contest, excellent works are selected by a steering committee in VNM and they proceed to participate in a Mabuchi contest. (4) Strengthening the sense of unity amongst employees, the company plans to organize group commuting, to hold a karaoke party and to organize a women’s soccer team. (5) VNM people visit homes for the handicapped and orphanages periodically to practice philanthropy, regarded as one of the company’s social responsibilities. These activities are open or reported to the public via newspapers and posters on internal notice boards.

Management styles in the factory are analyzed by their application score and recorded in Chap. 6. A SWOT analysis for Mabuchi is shown in Table 4.8. 100 K. Yamazaki

Table 4.8 SWOT analysis (Mabuchi Motor) Strengths Weaknesses Mabuchi Motor 1. Overwhelming 1. A small motor as the dominance of main only product product in worldwide 2. A lesser-known brand in share of market automotive market 2. Possible conversion of value chain into cost reduction Mabuchi Motor 1. Monozukuri know- 1. Defects rate not lower Vietnam Ltd. hows accumulated since compared to that of 1997 Chinese factories 2. Turnover rate almost 2. Weak capabilities of zero due to best work local managers environment Opportunities Threats Mabuchi Motor 1. Demand growth of 1. Worsening political automotive market condition in China and expected to increase Vietnam 2. Cost competitiveness in 2. Economic sanctions production overseas against Chinese and higher than one in Vietnamese products Japan Mabuchi Motor 1. Long-term economic 1. Political relations Vietnam Ltd. growth rate expected to between China and be more than 6% Vietnam expected to 2. Firm growth of Japan’s worsen FDI in Vietnam

Yamaha Motor Co., Ltd.

Overview of the Company: (1) Yamaha Motor Co., Ltd. (hereafter called Yamaha) is listed on the Tokyo Stock Exchange as a manufacturer and seller of transportation vehicles. Yamaha has adopted the omnidirectional strategy as a corporate strategy that the company is watching needs and trends in all directions of industry related to moving equipment like a motorcycle as a main product. Yamaha’s target markets are not only individuals but also industry and government. Motorcycles were first made by its parent company, Yamaha Corporation, also a maker of musical Case Studies on Japanese MNEs: Global Strategy 101

instruments, and Yamaha was established separately in 1955. As a result, people would know both Yamaha Motor Co., Ltd. and Yamaha Corporation as ‘Yamaha.’ However, it is important to distinguish between the two. Yamaha is headquartered in Iwata City, Shizuoka Prefecture, geographically located in the center of Japan. The city used to be a famous area for textile manufacturing in the spinning and weaving industry until around 1960. Nowadays, Yamaha is much larger than its parent company. In 2016, paid-in capital was JY85,797 million, sales were JY1503 billion and profit was JY102 billion. (2) Yamaha has invested in 29 countries and has 94 overseas companies, mostly across Asia, the Americas and Europe. The Asian market accounts for 53% of sales, including 11% in Japan, 22% in North America, and 13% in Europe. As for the motorcycle (MC) business, the MC division sold products worth JY930.1 billion, equivalent to 62% of total sales. The division’s biggest market used to be China, but the Indian market is now larger. Other subsidiaries of Yamaha are also increasing their market share in India. In terms of development in the MC division, the company invested in R&D substantially through Development Centers established in ASEAN (the centers in Indonesia and Thailand were integrated into one), China, India, Italy, and Taiwan as well as one in Japan. The Development Centers overseas are Yamaha Motor Research & Development India Pvt. Ltd., P.T. Yamaha Motor R&D Indonesia, Yamaha Motor Asian Center Co., Ltd., Yamaha Motor R&D Shanghai Co., Ltd., Yamaha Motor Research & Development Europe S.r.l., and Yamaha Motor R&D Taiwan Co., Ltd. The level of development is stipulated by a scale from A to D. Level D is the most primary and is executed in every five overseas centers. All overseas centers had completed the execution of Level C as of 2015. Levels C and D are defined as the merchandising development of only a color and graphics for accessories that require the response at site in the time of a minor change every year. Levels A and B can only be developed in Japan. (3) The division called ‘marine business’ turned over JY297.2 billion in 2016 that was equivalent to 20% of total sales at the company and 102 K. Yamazaki

that was next to MC division in sales amount. The main product is an outboard motor. Others include water vehicles, leisure boats, and swimming pools made by fiber reinforced plastics or FRP. As for the outboard motor, there are two domestic factories in Kumamoto City and Fukuroi City, and two foreign factories in Brazil and in Thailand. The motor consists of 1000 to 2000 components depending on its size. The outboard motor generally has three sizes, the large size, which is 225 horsepower (HP) and above, 80-200 HP for the mid-size, and 70 HP and below for the small size. In order to lower the cost of manufacturing, the Fukuroi factory concentrates on the largest size, Kumamoto makes the mid- and small sizes, and a factory in Thailand produces only the small size. Fukuroi serves the mother function for the foreign factories. As a result of long- term concentrated manufacturing, monozukuri techniques have been accumulated and Yamaha holds about 40% of the world outboard market.

Hiroyuki Yanagi, president, chief executive officer and representative director, and Katsuaki Watanabe, director and senior executive officer of MC division at Yamaha Motor Co., Ltd. were interviewed in 2015. Regarding the company’s broad approach, Yanagi what is meant by ‘Creative and Impressive Enterprise’. It emerged in the second of the 1980s, and was adopted as a slogan in 1990. ‘High quality monozukuri to appeal the sensitivity of the human being’ is the company tradition, which leads to ‘jinki kannou’ (two ways of sensual communications between human and machine). Yanagi thinks that technological thought and technology itself are to some extent logical, but that this logic does not solve everything by itself. The idea is to do monozukuri by weaving sensitivity into logic, meaning that the human and the machine communicate with each other and are finally assimilated. Yamaha emphasizes ‘gogennshugi’, that is five (meaning ‘go’) -isms, genjyo (real situation), genba (real workshop), genbutsu (real material), genchi (real site) and genjitsu (real occasion). Daily operations are based on this philosophy. The company’s five-year business plan, ending in 2020, focuses on three areas of growth, namely the Motor Cycle Business Division, the Case Studies on Japanese MNEs: Global Strategy 103

Marine Business Division, and the Vehicle & Solution Business Division. These make up Yamaha’s corporate idea and its theory of personal mobil- ity and an affluent life. In order to realize these ideas, intelligent technology is indispensable and not specific to one division, but is rather spread across all divisions. As for the Marine Business Division, the company has two factories making outboard engines in Japan as well as one in Thailand. Although the outboard motor market in USA is large, with around 10,000 boats sold per year, the company will not build a factory there as motors are already being produced elsewhere (see above). These concentrated manufacturing systems operate well, with an overall annual capacity of 400,000 units. On the other hand, the boat business is trying to catch up with demand. In the American market, Yamaha Jet Boat Manufacturing U.S.A., Inc. (YJBM) and two subsidiaries are manufacturing 10,000 boats every year, enough to meet annual demand. As such, the company is considering an expansion of production in Dalian, China, not only for boats for the fishing industry but also for sport and leisure. The Vehicle & Solution Business Division is applying the company’s core technology to a diversification strategy and looking for a niche market with high profits. The swimming pool business is worth JY5 billion in sales yearly, and it has just begun looking for overseas markets and how to penetrate these markets. Whether the Division utilizes Yamaha’s Overseas Market Development Operation Business Unit (called OMDO) is an issue for later. The drone business might have a high potential for growth. The division is looking at the feasibility of developing its business in USA and Australia. Investment issues should be decided in a so-called ‘Strategy Meeting’. Having the ‘Strategy Meeting’ is a rule concerning investment and is important in the light of the governance at the company. In some cases, the divisional general manager may decide by himself. Larger investments must be decided at board level. Yanagi uses a mid-term or three-year strategy, with a shorter term plan adopted for each budget year. The Strategy Meeting and the board of directors meeting will approve plans when required. Expanding through acquisition is an option offered by the top management of divisions, and is decided at the Strategy Meeting. Regarding representative offices in 104 K. Yamazaki foreign countries and the heads of overseas operations, the decisional powers of individual personnel depends on the structure of the organization. The president believes that human resources for the execution of the company’s global corporate strategy is not plenty enough rather than ‘always sufficient.’ Furthermore, in reality, resources are not always sufficient so that the company is always thinking about how it deals with them, both qualitatively and quantitatively. The company has a ‘Global Executive Committee’ (GEC) which operates under the Strategy Meeting and there is a ‘Global Executive Program’ (GEP) and a ‘Regional Executive Program’ (REP) under the GEC. The method of nurturing and training human resources globally should be also in a kaizen process. The company uses a headhunter whenever required. The CEO does not think that it is important that the motorcycle division accounts for 60 to 70 percent of the company’s total sales. In addition, overseas sales of 90% of total sales is not a target, but it becomes a management guide for general operations. Sales have increased in developed countries, ASEAN and the BRICS, but from now Yamaha will look to develop new markets, especially in Africa, west Asia, and parts of Indo-China. The company can still target one-third of the world’s population. Regarding the motorcycle business in Nigeria, a second attempt is being made to establish a presence. In 1983, the company established a joint venture with Mitsui & Co. and a trading company in UK Before its establishment, the company had sold 50,000 units per year. Due to political developments in Nigeria, the company was forced to retreat. However, in 2016, the company started production of 50,000 units per annum jointly with CFAO, a French trading company. As the general manager of the MC division, Watanabe directs a broad range of operations related to motorcycle businesses, but except divisions of production, purchasing, chief of staff (CS), and the Platform (PF) Vehicle Unit. PF Vehicle Unit is taking care of an underbody development for all vehicles and consists of subdivisions of functional divisions. All general managers in subdivisions within the functional division report to their bosses even if an issue is related to the MC division. All general managers of the divisions work together in one large room, although they Case Studies on Japanese MNEs: Global Strategy 105 have their own offices within the divisions. All directors get together to eat a ‘Power Lunch’ that is held once a week in order to communicate with each other more effectively. India Yamaha Motor Pvt. Ltd. (called IYM) is limited to motorcycle production only. The senior manager reports to Watanabe, but since the president at Yamaha Motor Corporation, USA (called YMUS) is responsible not only for the motorcycle business but also sales of other Yamaha products, he will report to the top management of divisions individually. Yamaha Motor Taiwan Co., Ltd. (called YMT) reports to Watanabe, like YMUS, but Yamaha Motor Parts Manufacturing Co., Ltd. (called YPMI) is only a parts business, meaning that it belongs to the production division. Under the MC division, there are three subdivisions classified by sales regions. The first department works in East Asia, including Taiwan and South Korea, excluding China and the ASEAN countries, the second in the developed countries, such as USA, Canada, Europe, and the Oceania countries, including Japan, and the third in China, India, Latin America and other regions in the world. The businesses in other regions such as the Middle East countries are taken care of by OMDO, which deals with outboard motors, generators, and multiple-use engines as well as motorcycles. There are three sections in the Planning Drive Department of the MC Division. The first section deals with business planning, the second merchandising, and the third sales planning. In a matrix of the MC Division, three departments function as a row against three subdivisions of sales as a column. In the domestic market, Yamaha Motor Sales Co., Ltd. (YMSC) sells all motorcycles as a sole agent. The president of that company is an ex-director at Yamaha, but other employees are all taken on by YMSC itself. Some Yamaha employees work just as sales representatives and so not as managers. At the planning stage of a three-year business plan at Yamaha, the Corporate Planning Department and Corporate Administrative Department plays an important role for setting guidelines. In accordance with these guidelines, the MC Division, for example, would incorporate its own plan through the business planning section in the MC division. The mid-term plan should be rolled over to the next year, with any revi- sions based on the previous year’s results. 106 K. Yamazaki

In 2009, the size of the Chinese market was 17 million vehicles per annum, this declining to less than 10 million in 2016. The long-term forecast is for a further drop to 6 million vehicles by 2020. Meanwhile, the Indian market has expanded greatly. It could soon be up to 18 million vehicles in size per year. Yamaha’s market share in India is only around 3.4%, while Chinese manufacturers such as Hero and Homa account for 66.4% and Indian makers 24%. Two-thirds of the Chinese market is made up of around 200 domestic manufacturers. They are headed by Dae Chang Jiang Group, while Japanese-Chinese companies supply the remaining one-third of the market. The Indonesian market has grown rapidly to 1.6 million motorcycles in 2016, a 14% increase on the previous year. Indonesia accounted for 30% of MC Division’s output in 2016. Indian and Chinese manufacturers are dominant in Africa. Yamaha invested in the Nigerian market through a different strategy compared to Indian and Chinese makers. The Yamaha 125cc vehicle is used as a taxi in some developing countries. Let us examine how Japanese management system works at IYM in Chennai, India. Riuji Kawashima, Dy. managing director at IYM, explained the corporate vision and strategy during the author’s visit in 2016. In accordance with the Factory Law in India, the company should position an occupier in view of ownership as well as a plant manager in administration. Two slogans, “Cost competitive No. 1” and “Made in India, Ease of Business” were on display in the plant, aiming at the monozukuri factory by manufacturing motorcycles at the lowest cost in the world. Kawashima established the following requirements in order to realize the company’s objectives when he delivered his message to the workers, underlining the idea that “we are in the same boat”;

(1) To maximize vehicle output per year: (a) From 600,000 at present to 1800,000 vehicles per annum. (b) More efficient working by using robots, such as in the welding process. Case Studies on Japanese MNEs: Global Strategy 107

(2) To maximize vehicle output per hour: (a) To shorten the tact time of one vehicle every 30 seconds at present. (b) Removing bottlenecks. (3) To lower inventories to zero: (a) To expand the number of vendors in the suppliers’ park corresponding to the requirements of the production lines; so far only nine vendors in the park occupying an area of 260,000 sqm (IYM: 440,000 sqm). (b) To make simultaneous pull production possible. (4) To minimize expenditures. (a) To increase the reuse of factory waste water from 80% in 2015 to 85% in 2016. (b) To save as much energy as possible.

The similarities with Japanese styles of management that IYM pos- sesses are as follows:

(1) To strengthen human resources, the ratio of a regular employee to a contractor is 6:4, while in some other companies in India the ratio is reversed. (2) Seven job classifications from entry worker to section manager, as in Japan. (3) No labor unions, but there is a workers’ council consisting of shop floor representatives. (4) A cross-functional team is present and skill maps are produced. (5) 5S activities are used, although they appear to be in the early stages. (6) Decisions about wage increases and bonuses are made by a section manager, who is classified as a white-collar worker.

Management styles in the factory are analyzed by their application score and recorded in Chap. 6. A SWOT analysis for Yamaha Motor is shown in Table 4.9. 108 K. Yamazaki

Table 4.9 SWOT analysis (Yamaha) Strengths Weaknesses Yamaha Motor Co., 1. Strong monozukuri 1. Less-known brand of Ltd. power worldwide motorcycle worldwide 2. Top share of market in 2. Ratio of ordinary profit outboard motor to sales not high compared to a top-share enterprise India Yamaha Motor 1. Management know- 1. Insufficient supply park Pvt. Ltd. hows accumulated for 2. Low production 2 million vehicle efficiency production 2. Sales networks fairly well established Opportunities Threats Yamaha Motor Co., 1. The motorcycle 1. Worsening of political Ltd. growth in developing relations between India countries expects and China increasing 2. Quality upgrading and 2. Multiple products low-price strategy for strategy shall be in a Chinese manufacturers full bloom every market India Yamaha Motor 1. Long-term economic 1. International trade Pvt. Ltd. growth rate expected imbalance to be deficit to continue at more every year than 7% 2. FDI by foreign countries 2. Modi government likely to stop due expected to be stable political factors for a long period

YKK Corporation

Overview of the Company: (1) YKK Corporation (hereafter called YKK) is a non-listed company, although it has capital of JY12 billion and is one of the most advanced global corporations in Japan. As it is not listed, there is no significant financial data available for researchers. However, the company bond is quoted on the market and is rated at AA- by Rating and Investment Information, Inc. (R & I). YKK was originally a short name for Yoshida Kogho (means ‘industry’) Kaisha (means ‘company’), but Case Studies on Japanese MNEs: Global Strategy 109

YKK has now become a worldwide brand name for high0quality fasteners or zippers. YKK founder, Tadao Yoshida (1908–1993), decided that the company’s business policy should be based on the ‘Cycle of Goodness’. He believed that no-one prospers unless he renders benefit to others. It was said that he learned this when he read the biography of Andrew Carnegie in primary school. (2) The company has invested in 70 countries, having 90 subsidiaries overseas as of 2016 through a hexagonal regional headquarters system. YKK has two business lines, fasteners and aluminum window frames. Total sales in 2015 amounted to JY741.9 billion, with a profit of JY71.0 billion. YKK was established in 1934 as a former product manufacturer and began its current business in 1961. In terms of sales, 45% was made up of fasteners and 55% of aluminum windows, but in terms of profit these percentages were reversed. In the organization chart for YKK the production of aluminum windows has not been included since 2014 and has in fact been separated out as YKK AP together with the manufacture of building materials. That is why YKK is known as a fastening company. The YKK orga- nizes in the company the division called ‘Machinery & Equipment Technology’ which has assisted two business lines: fasteners and YKK A P. (3) YKK began FDI in 1959 in New Zealand, and invested every year in other countries, such as USA and Malaysia. In YKK, the overseas business accounted for more than 90% of sales and more than 85% of employees in 2012. A summary of the company’s hexagonal strategy by region is shown in Table 4.10.

Table 4.10 Management data at YKK by regional headquarters North & Central South East ASEAN, Japan America America EMEA Asia Oceania Total Sales 56% 7% 2% 8% 15% 14% 100% Amount tangible 54% 5% 1% 5% 18% 16% 100% fixed asset turnover 2.37 3.23 2.85 3.50 1.84 1.93 2.31 rate 110 K. Yamazaki

A key feature of YKK’s global strategy is its focus on the EMEA region, i.e. Europe, Middle East and Africa. YKK is the only company among the Japanese MNEs that is manufacturing in multiple African countries. YKK began its Swaziland operation (Yamazaki 2012) in 1976 followed by production in Egypt in 1980. The company continued manufacturing in other African countries, such as Tunisia in 1997 and Morocco in 2005. All four African operations are controlled indirectly by YKK EMEA out of a regional headquarters. We will consider how EMEA operations work in detail later. The author interviewed Nobuo Igarashi, managing director, Europe, Middle East and Africa, and president at YKK Europe Ltd. in 2015. EMEA is headquartered in London, UK, one of six regional headquarters (RHQ) at YKK. There are 120 employees working at the EMEA HQ. It has profit responsibilities for 28 corporations, including 11 manufacturing companies across EMEA. In YKK’s hexagon strategy, this span of control extends from Russia and Pakistan to all countries westward. The RHQ has three roles; (1) technical and operational assistance, (2) to look after 40 Japanese expatriates, and (3) to collect country risk and marketing information in the relevant area. As for (1), there is a technical engineering department in which a general factory manager at YKK Turkey serves concurrently as head with three assigned engineers also on duty. Technical exchanges of information is carried out smoothly inside EMEA. Taking inspection equipment as an example, although the equipment for quality assurance at the Swaziland factory is made in France and Germany, YKK Turkey direct employees in Swaziland to operate it. In the case of calibration work at YKK Morocco and Tunisia, YKK France will take the initiative in terms of direction because of lingual advantages, and will report to EMEA headquarters upon completion. As for marketing, EMEA cooperates with a global marketing division at YKK in Hong Kong. The African business under EMEA’s control is outlined in Table 4.11. Information for the four YKK manufactures in Africa comes from there, and that for a buyer and a manufacturer of sewn product comes from EMEA HQ. Case Studies on Japanese MNEs: Global Strategy 111

Table 4.11 Where YKK products made in four African factories are sold Where is the buyer and/or African manufacturer of the sewn Where are the apparel made by Operations product located? YKK exported? YKK in Egypt Egypt USA, EU YKK in Morocco Europe, especially Spain Morocco Swazi Lesotho and South Africa Mainly USA, but also Europe operation YKK in Tunisia Tunisia Europe, mainly France

Table 4.12 provides assorted information concerning the four African countries in which YKK has operations. The area and population of Swaziland are the smallest amongst the four countries. GNI per capita in Morocco and Swaziland are similar, but lower than in Tunisia. Swaziland’s key advantage is that it borders South Africa. Moreover, the factory in Swaziland is located between two big cities (Table 4.13). Judging from an application scores arrived at through hybrid analysis, the performance of the Swaziland plant is around average among the four African operations. The Morocco factory is the best performing of the four, followed by Egypt and Tunisia on the same score. Swaziland as well as Morocco and Tunisia observe YKK’s production standards; the general managers of all three are foreigners, not Japanese. It seems ironic that the foreign general managers observe YKK’s production standards more likely than do Japanese managers in Egypt. In addition to manager nationality, the product itself also affects the application score. The

Table 4.12 African countries in which YKK has manufacturing operations Egypt Morocco Swaziland Tunisia Area (KM2) 1,002000 458,730 17,366 163,610 Population (1000)a 82,100 33,000 1200 10,900 GNI per capita (US$)a 3140 3020 2990 4200 Capital City Cairo Rabat Mbabane Tunis Year of Independence 1922 1956 1968 1957 Independence From UK France, Spain UK France YKK location Cairo Casablanca Manzini Tunis aSource: World Bank Report 2015 112 K. Yamazaki

Table 4.13 Basic information regarding YKK’s four factories in Africa Egypt Morocco Swaziland Tunisia (*1) (*2) (*3) (*4) Establishment 1980 2005 1976 1997 Paid Capital (converted to 6.5 4 0.5 0.9 US$ million) Capacity (million zippers per 69 50 83 20 year) Area of structure 12,906m2 2000m2 17,800m2 4500m2 Employees 128 60 201 52 Japanese expatriates 3 0 1 0 Annual working days 240 243 240 300 Nationality of the top executive Egyptian French Japanese Japanese *1: YKK Egypt S.A.E *2: YKK MAROC S.A.R.L *3: YKK Southern Africa (PTY) Ltd., Swaziland Branch *4: YKK Manufacturing Tunisia S.A.R.L

Egyptian factory manufactures a single kind of product in large amounts for the final American customer. In this sense, the customer decides differences among the manufacturing management when it comes to application scores. Although the Egyptian factory is different from the other three factories in terms of products manufactured and customers served, all four conduct their operations based on YKK policy. Swaziland’s operations and those in the three other African countries show some differences in terms of 23-item analysis, but in the four- perspective evaluation they are nearly the same. Why?

(1) YKK customers request high quality, which may stipulate YKK management system. (2) The manufacturing machine is made by YKK. (3) YKK policy reflects in human-method side.

All four companies in Africa are managed by Yoshida’s business approach. This management style affects application scores. The average score of the four factories in Africa is fairly high at 3.6 for the ‘labor relations’ group which consists of four sub-items. It is reported in the JMNESG team meeting that 3.2 is the average application score among Case Studies on Japanese MNEs: Global Strategy 113

13 African-Japanese companies that JMNESG had visited in 2009 and 2010. What this means is that the transfer degree of Japanese management style shows slightly applied side. Compared with 13 companies, the four YKK factories have taken more applied management style than those companies. The company may keep its non-listed status because YKK would like to continue to follow the founder’s policy of the ‘Cycle of Goodness’ without external interference. The author discovered that YKK’s ‘Cycle of Goodness’ at the time of visiting YKK (UK) Ltd., one of EMEA’s manufacturing companies, in 2015. Paul Byrne, then a managing director, explained the company’s brief history in relation to the garments industry in the UK. The migration of UK garment manufacturing started in 2000. The company had implemented a project called ‘Phoenix

Table 4.14 SWOT analysis (YKK) Strengths Weaknesses YKK Corporation 1. A major and famous 1. Company’s tradition brand of fastener values preventing worldwide innovation 2. High-end technology 2. Low ordinary profit to of monozukuri that sales ratio cannot be copied YKK Tunisia SARL 1. President’s strong 1. President primarily leadership stationed in Tunisia 2. Company location in 2. Weak capabilities of local close proximity to managers customer Opportunities Threats YKK Corporation 1. Growth of foreign 1. Political risks in 70 markets expected to countries likely to affect increase operation 2. Advantages of 2. Risk of host countries in production in Africa taking over subsidiaries YKK Tunisia SARL 1. Good labor balance 1. Terrorist organizations improvement stirring up labor disputes 2. Dramatic increase 2. Possibility of a wage- likely in FDI from increase movement countries other than France 114 K. Yamazaki

Project’ in YKK (UK). As a result, and in order to survive financially, they began making a functional fastener for a diving suit. Even now, however, the company seems to be barely profitable, although the EMEA group still supports it. This is part of the ‘Cycle of Goodness’. This aside, YKK should be able to maintain its 43% share of the world fastener market. Indeed, YKK has evolved into “YKK Episode”, drawn by a car- toon in English (YKK 2017). Management styles in the factory are analyzed by their application score and recorded in Chap. 5. A SWOT analysis for YKK is shown in Table 4.14.

Yokogawa Electric Company

Overview of the Company: (1) Yokogawa Electric Corporation (hereafter called ‘Yokogawa’) is listed on the Tokyo Stock Exchange as a manufacturer of industrial automation and control instruments, and their sales and service. It was founded in September 1915 by Tamisuke Yokogawa and had paid-in capital of JY43.4 billion as of 31 March 31 2015. As for sales, there was a high of JY437 billion in fiscal year 2007, this declining to JY388.5 billion in fiscal year 2013. It increased subsequently to JY413.7 billion in fiscal year 2015. The operational profit rate was 5.0% in fiscal year 2011, rising to 9.6 percent in fiscal year 2015. (2) Yokogawa has investments in 56 countries, 69 overseas subsidiaries and three kinds of affiliates categorized by manufacturing, marketing and sales, and engineering. A total of 18,300 employees work overseas, while 6800 employees are based in Japan. About 70% of Yokogawa’s businesses are focused on foreign customers and clients. The senior management of Yokogawa Electric International Pte. Ltd., Yokogawa Corporation of America, Yokogawa Europe B.V., Yokogawa Middle East and Africa B.S.C., and Yokogawa Engineering Asia Pte Ltd. report directly to Takashi Nishijima, president of Yokogawa. (3) Yokogawa has attained a solid reputation in control systems and measuring instruments. The company’s philosophy is as follows: “As a company, our goal is to contribute to society through broad-ranging activities in the areas of measurement, control, and information. Individually, we Case Studies on Japanese MNEs: Global Strategy 115

aim to combine good citizenship with the courage to innovate” (Yokogawa 2016). The company aims to realize its vision statement, through the ‘Process Co-Innovation,’ Yokogawa creates new value with its clients for a brighter future and works with business partners to approach environmental concerns through co-innovation. Industrial instruments and their applied engineering based on the highest quality guaranteed systems are put into action. As far as the Deming Prize is concerned, Hokushin Industries Inc., which merged with Yokogawa in 1983, was awarded in 1981, and Yokogawa Hewlett-Packard Co. Ltd. (dissolved in 1999) was also awarded the Prize in 1982.

The following is a summary of the company’s executives whom the author met: (1) on 25 March 2013, Takashi Nishijima, director, senior vice president in the Industrial Automation Platform Business Headquarters, who was later promoted to be president, (2) on 28 January 2015, Yoshitoshi Manabe, vice president, Manufacturing Headquarters and president of the Yokogawa Manufacturing Corporation, (3) on 28 January 2015. Yasunori Kawada, vice president, at the Quality Assurance Headquarters, (4) on 13 February 2015, Makoto Otake, managing director in Yokogawa Engineering Asia Pte Ltd. at Quality Assurance Headquarters, who was later promoted to vice president. Takashi Nishijima succeeded Shuzo Kaihori as president of Yokogawa in 2013. The company’s founder, Tamisuke Yokogawa indicated to employees on the first day of the company’s creation in 1915 that “You don’t have to earn profits by your jobs.” Instead, he encouraged young engineers to manufacture the highest quality products that only Yokogawa would be able to make. Learn the technologies first, and then strengthen them so that customers will know that “Yokogawa products are excellent.” His statements have been observed throughout the subsequent history of Yokogawa as being indicative of a quality-first philosophy. “Always Quality First” is made up of the basic spirit among Yokogawa employees to be customer-oriented (Yamazaki 2012). Yokogawa quality code of conduct is specified as follows. Yokogawa group as one consolidated management should be based on spirits at the establishment corresponding to changeable social needs and to seek for one quality in the world to carry out quality management autonomously, and to supply the products 116 K. Yamazaki that satisfy the customer needs. All Yokogawa group companies should improve the brand image as much as possible. The quality division at company headquarters unifies various approaches in other divisions into one, making no compromises on quality at all. A total of 62 of the company’s 64 subsidiaries have acquired ISO 9001 certification. The quality system used is in accordance with Yokogawa’s code of quality as follows. Yasunori Kawada, vice president, Quality Assurance Headquarters, is close to the process. First, Yokogawa assures customers of the quality of Yokogawa as a group. This must be achieved as a functional quality matrix that is organized at Yokogawa by the Quality Assurance Department of the Consolidated Management Unit (CMU-QA) and the Quality Assurance Headquarters (QA-HQ). Second, governance of quality assurance is categorized by ‘Level of Control’ from the highest level and downwards.

‘Observance’ The rules to be observed by a group at Yokogawa. ‘Approval’ The items at CMU-QA must be approved by QA-HQ. ‘Report’ The items at CMU-QA must report to QA-HQ. ‘Declaration’ The documents must be declared by CMU-QA. ‘Discretion’ The discrete items by CMU-QA.

Manabe is responsible for all manufacturing departments at Yokogawa; he is president of Yokogawa Manufacturing Corporation (YMG). Therefore, his span of control covers not only industrial automation and control, but testing and measurement and other areas. As for global strategy, he has designed it himself. Meanwhile, one-third of Yokogawa products are made by his division. Judging from this, the company is mainly an engineering service company, including a variety of software products related to hardware. As a manufacturing division at Yokogawa, the department had already attained the financial objectives set for fiscal year 2015 by the end of fiscal year 2014. Cost competitiveness was strengthened through a policy of nurturing young staff to focus on the company’s global strategy. Some 31-year-old Japanese employees are, for example, assigned to work in USA or South Korea. The duration of training is five years. Meanwhile, engineers would come to Japan to learn the Yokogawa way of manufacturing in order to achieve monozukuri. Case Studies on Japanese MNEs: Global Strategy 117

Manabe was of the view that when foreign manufacturers enter the market, the QCD (Quality, Cost and Delivery) system at Yokogawa should be firmly implemented by the firm’s younger employees. The QCD system should be developed for new products, so as to continue the business in the future. All they have to do is to improve the productivity of local factories and nurture young engineers’ capabilities. Once established, they will be able to decide the best manufacturing processes product by product. Yokogawa Electric Asia Pte Ltd. (YAS) is one of the selected candidates which is able to operate for at an international level for Yokogawa. YAS is located in Singapore and has a subsidiary named P.T. Yokogawa Manufacturing Batam (YMB) on Batam Island in Indonesia that has very close economic links with Singapore. In terms of a core competence, the development of technological standards is carried out in Japan. Let us consider the global service operation at Yokogawa, especially in Asia (with the exception of China). Yokogawa Engineering Asia Pte. Ltd. (YEA) is one of the regional headquarters at Yokogawa, and it is located in Singapore. In the same building, there is Yokogawa Electric International Pte. Ltd. (YEI) and it is in charge of global sales. YEI-Singapore looks after offshore development and global engineering. The span of control at YEA extends across Asia (excluding China) from Southwest Asia to Southeast Asia through Oceania. Yokogawa Middle East headquartered in Bahrain controls the Middle East and Africa. The basic functions of YEA are sales, engineering and services. The YEA’s objectives are to expand profits and to allocate human resources across its span of control, this functions delegated from the headquarters at Yokogawa. Production or factory issues are out of Manabe’s control. His operational policy at YEA is to let each location or site administer itself. Since YMB in Batam is a manufacturing company, it is under Manabe’s control. The financial format and reporting system is common for all YEA companies. However, the businesses are different in themselves, and they are affected by the prevailing conditions in Asian markets. The reporting system between YEA and the companies controlled by YEA is similar to one between Yokogawa and YEA. The company is responsible for profits at Yokogawa functioning as one of the profit centers. 118 K. Yamazaki

In line with Yokogawa’s management approach, Otake is managing the companies under YEA via the method of top-down in parallel with bottom-up. YEA guided by Yokogawa instructs its companies to carry out their objectives but adjusted according to local circumstances. All companies under the control of YEA are characterized by a responsive- ness to customers. Taking into account local market differences, these companies arrange their own mid-term (3-year) and short-term (1-year) plans. In a nutshell, YEA’s subsidiaries are categorized strategically as either ‘mature,’ ‘growth,’ and ‘development.’ This helps them to be placed in the overall YEA framework that can intervene, adjusting issues of, say, marketing if different companies are in conflict with each other. Further, when it comes to project-base jobs, they are clearly YEA-oriented, and at the time of execution the concerned parties cooperate under YEA’s leadership. YEA based in Singapore has slightly more advantages than other regional headquarters in Yokogawa as it originally started as a regional hub for sales development. Regarding collecting information among YEA and group companies, the responsibility depends on the territory and the project. Localization of human resources is advanced in YEA. The general managers of subsidiaries are local people except in India and Indonesia. In YEA headquarters, six managers are local. There is also one Japanese manager and all report to Otake. He receives monthly management reports from subsidiaries and local offices in Asia. At YEA Ohtake has periodical meetings: (1) with senior management; and (2) with the business line heads. As Yokogawa’s overseas monozukuri operation in China is written in “Japanese Global Management,” how do Yokogawa operate in Southeast Asia? YMB is 99% owned by YAS and one percent by PT Yokogawa Indonesia. Since the both YAS and PT Yokogawa are occupied by Yokogawa, YMB is also 100% owned by Yokogawa. YAS carries out manufacturing functions by itself, with engineering support from YMB. A total of 33 employees, including three Japanese expatriates, work in the engineering center, while 122 employees are in the manufacturing center, with no Japanese, at YAS. Case Studies on Japanese MNEs: Global Strategy 119

Batam Island is 415km2 in size and it belongs to Indonesia which is 20km away; Singapore is one hour by boat. The Indonesian and Singaporean governments agreed to recognize Batam as a Special Economic Zone in 2008; as such, it tax-free. In addition, Batam is an industrial boomtown, an emerging transport hub, and is part of a Free Trade Zone consisting of Indonesia, Malaysia, and Singapore. According to the 2010 national census, Batam is the fastest-growing municipality in Indonesia, with a population growth rate of 11% per year. Its population in 2014 was 1.2 million. YMB is located in Batamindo Industrial Park. The official language in Batam is Indonesian, but Chinese is also commonly used. However, YMB makes it a rule that English be used as the main corporate language so as to fully drive home to Yokogawa’s employees the philosophy of quality and certain standards. In total, YMB occupies 9750m2, with 7390m2 of this consisting of buildings. There are 365 people working at YMB, with 293 based in manufacturing, 35 in engineering, and 37 in the general administrative division. Seven Singaporean expatriates, including the president and three heads of divisions, manage operations at YMB; there are no Japanese expatriates. The company’s main products are electrical and electronic accessories, plastic components and metal parts. In addition, YMB assembles distributed control systems, measuring instruments and related electronic devices, and also carries out a fabricating service for tools and molds. Sales were US$10.8 million in fiscal year 2013 and US$11.0 million in fiscal year 2014. All products are exported to Singapore. In terms of human resources, the average age is 25, and the number of contract workers plus part-timers is 253, mostly in manufacturing at YMB. The company’s rule for annual paid leave is 12 to 15 days depending on length of service, and the rate of absenteeism in 2014 was 3.5% including annual leave. Furthermore, the separation rate declined to 1.5% in 2014 from 1.9% in 2013 for permanent employees. Employees work on average for 1920 hours annually. There is not a detailed wage system in place; there are only three categories of pay, namely for operators, technicians and engineers. The company has been implementing an called 3E, meaning ‘enlarge’, ‘enrich’ and ‘enhance. In the process of carrying this out, the company will enlarge the scale of 120 K. Yamazaki production, enrich the profit of production, and enhance the reputation of the company. Management styles in the factory are analyzed by their application score and recorded in Chap. 5. A SWOT analysis for Yokogawa is shown in Table 4.15.

Table 4.15 SWOT analysis (Yokogawa) Strengths Weaknesses Yokogawa Electric 1. Strong brand 1. Company’s tradition values Corporation worldwide of preventing innovation industrial automation 2. Low ordinary profit to sales and control ratio instruments 2. Top share in Japan for many years due to excellent product development capabilities Yokogawa Electric 1. English being the 1. Even it is a small company, Asia Pte. Ltd. corporate official two past presidents work as language, even in a senior consultant and Batam factory young manager could not 2. Efficient ratio of line work actively and staff among 2. Weak capabilities of local employees in Batam managers at Batam factory factory Opportunities Threats Yokogawa Electric 1. Growth of foreign 1. Development of alternative Corporation markets expected to methods of production increase 2. Quality upgrading and 2. Likelihood of a low-price strategy for constant growth of Chinese manufacturers industrial instruments and their applied engineering service Yokogawa Electric 1. Long-term economic 1. Reoccurrence for labor Asia Pte. Ltd. growth rate expected disputes nationwide to be more than 5% 2. Wages continuing to 2. Firm growth of Japan’s increase disproportionately, FDI in Indonesia compared to GDP growth rate Case Studies on Japanese MNEs: Global Strategy 121

References and Notes Asmo, see more information at: http://www.asmo.co.jp/en/ (searched in June 2016). Denso, see more information (searched in July 2017): https://www. denso.com/global/en/about-us/philosophy-and-vision/denso-spirit/ ETEL et al., see the URLs: http://www.etel.ch/ for ETEL S.A., http:// www.photonics.com/ for Photonics Media Co. Inc. and http://www. lutron.com/en-US/Pages/default.aspx for Lutlron Electronics Co. Inc. (searched in June 2016). Furukawa, see more detail at http://www.furukawaas.co.jp/english/ corporate/html (searched in 2016). Hamanakodenso, see more information as follows: http://www. hamanakodenso.co.jp/english/index.html. (searched in June 2016). Hamaphotonics, see the homepage (searched in June 2016.) as follows. http://www.hamamatsu.com/jp/en/hamamatsu/overview/index. html

Akira Hiruma admitted that ‘the photons are our businesses.’ was correct grammatically. Instead, the company uses ‘PHOTON IS OUR BUSINESS’ as a slogan and this is shown on its business cards.

Hamaphotonics, see the homepage (searched in June 2016) as follows: http://www.hamamatsu.com/jp/en/hamamatsu/overview/index.html

In addition, Kenjiro Takayanagi was the inventor of the method of sending an image by a cathode-ray tube. He first did this on 25 December 1926 by using a mechanical type of Nipkow disk on the sending side and an electronic picture tube on the receiving side. The number of scanning lines was 40. Heihachiro Horiuchi, the founder of Hamamatsu Photonics K.K., is his disciple.

ISS, see more detail in https://www.issgovernance.com/ (searched in June 2016). Komatsu, see https://home.komatsu/en/ (searched in July 2017). 122 K. Yamazaki

‘Smart Construction’ is the brand name. It is a solution service which enables customers to realize safe and smart ‘job sites of the future.’ It will not only achieve safe and high-productivity job-site operation by connecting all information on job sites through the use of information and communication technology (ICT), but can also be used for maintenance work on social infrastructure and the of areas affected by natural disasters.

Komatsu, see https://home.komatsu/en/(searched in July 2017).

The ‘Komatsu Way’ is a thick book of instruction which is not publicly available. Ohashi explained to the author that deep meanings could be understood only by Komatsu people. The content consists of three chapters; (1) enrichment for corporate governance, (2) strengthening monozukuri competitiveness, and (3) Reforming consciousness by brand management. The book is handed over to the employee when they first start working for the company with a signed and numbered receipt. Whenever he or she leaves the company, the book should be returned.

Liker, J.K. and Meir, D. (2006) The Toyota Way FieldBook, New York: McGraw-Hill, pp. 420–425. When the two authors visited DMMI before they published the book, Yamanouchi explained actual Kaizen cases at the HVAC (air conditioner) line for them. Yamazaki, K. (2012) Japanese Global Management--Theory and Practice at Overseas Operations, Basingstoke, UK: Palgrave Macmillan, pp. 45–46, pp 66–78, pp. 86–87, and pp. 141–148. YKK, see http://www.ykk.com/english/ykk/manga/index.html (searched in May 2017). 5

Prospective Global Markets

The emerging or developing countries are usually prospective markets for common goods. The IMF, the United Nations Development Program (UNDP) and the World Bank define differently the classification of emerging and developing countries. Either way, the World Bank lists 126 countries and its definitions are useful for the discussion in this chapter (Ghemawat and Altman 2016). In Chap. 5, prospective markets around the world are discussed. BRICS (Brazil, Russia, India, China and South Africa) are emerging markets, followed by the VISTAS and CIVET, and also the VIP countries. The four abbreviated words in business phraseology represent 19 countries, but some are duplicated. Therefore, Japanese MNEs consider 14 countries to be prospective markets: Argentina, Brazil, China, Colombia, Egypt, India, Indonesia, the Philippines, Russia, South Africa, Sri Lanka, Thailand, Turkey and Vietnam. The MNEs try to choose their priorities among these countries and take appropriate action with respect to FDI. In principle, priority is given to wherever there is an existing business. The great majority of executives responsible for international business in the nine companies examined in Chap. 4 did not highlight African countries. The author, however, has selected Kenya, Nigeria and South Africa

© The Author(s) 2019 123 K. Yamazaki, Japanese Global Strategy, https://doi.org/10.1057/978-1-137-49738-3_5 124 K. Yamazaki as prospective markets based on their geographically position and their economies. Furthermore, as in Asia, Indonesia, Sri Lanka, and Vietnam have been. For instance, Sri Lanka is a rather small country compared with other Asian nations, but it is rich in the quality of its human resources. Of the 14 countries noted above, the World Bank’s classification excludes Argentina and Russia. A key task for MNEs is to decide where to invest. If they know the market in a specified country well through export activity, they can sub- stitute manufacturing locally for exported products. FDI by Japanese MNEs after World War II began in the nearest Asian countries, such as Hong Kong, the Republic of China (Taiwan) and South Korea that followed Japan economically as among the most developing countries. In the second stage, the MNEs expanded from Southeast Asia (ASEAN countries) through Southwest Asia, including Afghanistan, India, Pakistan and Sri Lanka. Southwest Asia is sometimes used as an equivalent for West Asia that includes some Middle East countries, such as Iran, Iraq, Jordan, Saudi Arabia and others. In addition, investment in the USA has increased since 1985. The third stage began at the beginning of the twenty-first century when China emerged as an important destination for FDI. The FDI rate of other Asian countries has been decreasing, although the FDI to Asia including China was slowly increasing. According to a survey conducted by the Ministry of Foreign Affairs, Japanese MNEs had around 71,000 branches or factories abroad as of October 2015. Roughly 70% of these were located in Asia, or approximately 50,000 branches or factories, including 33,000 in China. Regarding the increments of branches and factories in India for Japanese MNEs, the numbers for the past five years till 2015 were three times as more as before that resulted in next to China in the Asian region. The so-called ‘China Plus One’ strategy at MNEs means increasing investment in Thailand, Indonesia and Vietnam. As wages in these three countries increase, the MNEs strategy has been to shift to Bangladesh, Cambodia, Laos and Myanmar. The following explains how and why the selected countries in Asia are regarded as prospective markets. Prospective Global Markets 125

Indonesia

Denso Corporation, Furukawa Electric Co., Ltd., Kanefusa Corporation, Yamaha Motor Co., YKK Corporation, and Yokogawa Electric Company among nine case-companies had selected there in monozukuri strategy of FDI. Around 60% of the total Indonesian population or 260 million people live on Java Island, where the capital, Jakarta, is located. The population density on Java is three times higher than in Japan. Just under 90% of the population or 226 million people believe in Islam, making Indonesia the biggest Muslim state in the world; however, Islam is not a national religion. Monotheism is often observed either through Catholicism, Buddhism, Protestantism, Hinduism or Confucianism. Abundant natural resources in the country include petroleum, natural gas, coal, bauxite, copper, tin, and nickel. The Indonesian economy was one of the most severely affected by the Asian currency crisis of 1997–1998. The economy has since recovered and since 2004 has returned to normal growth levels seen in developing countries. According to the IMF, the growth rate was 5.0% in 2016 and nominal GDP was US$0.93 trillion. Followed by Susilo Bambang Yudhoyono, Jokowi Widodo was inaugurated as the seventh president of Indonesia in October 2014. He oversaw a paradigm change in the relationship between Indonesia and Japan, and the bilateral Economic Partnership Agreement was revised in 2015. It consists of five parts; (1) a new vision of Indonesia as a maritime country to create faster and more equitable growth especially for the national shipping sector, which will lead to a significant reduction in the cost of logistics, (2) Removing existing infrastructure bottlenecks and fast-track improvements to key infrastructure (3) Strengthen human development to enhance the quality of Indonesia’s human resources as part of the ‘mental revolution,’ by participation from private and government sectors in Indonesia and Japan, (4) Assisting value-added exports and the creative economy and (5) Joint efforts to develop small- and medium-sized enterprises (SME) to reduce the number of imported components used in exported goods. 126 K. Yamazaki

One of the most outstanding changes has been the growth of shopping malls which have appeared gradually, but steadily, in Indonesia. Their appearance is typically characterized five characteristics; (1) Becoming gigantic, (2) Diversity of customer segments, (3) Urbanization, (4) Integration with condominiums and office buildings, and (5) An amusement function. In the case of Gandaria City Mall, its area is 220,000m2 and 100,000 visit it every day. About 50% of the Indonesian population belongs to the middle class and many of them have embraced mall shopping. As a result of traffic congestion, residential areas in the suburbs of Jakarta are the preferred location for malls. In addition, malls sometimes include condominiums, hotels, and office buildings, including banks, lawyers’ offices, travel agencies and others. The entertainment in malls is more likely to be a park or an amusement park of some kind, often putting on shows at the weekend. Aeon Mall opened in May 2015 in the Bumi Surubon Damei (BSD) area; it is a newly developed location for high-end residents called ‘Japan Mall’. It has 100,000m2 and is home to 280 stores, including 48 from Japan. The Aeon Group has plans to build two other malls in Indonesia. The two big Indonesian zaibatsu (Lippokarawaci 2017), Lippo Group and Sinar Mas Group (SMG), will invest in the IT industry as a city developer by utilizing IoT, where all things are connected. Lippo Group will invest in Chikaran, a suburb of Jakarta called ‘Maycart,’ in the Indonesian version of Silicon Valley. In addition, Lippo will invest one integration place of contents industry for animation. SMG will invest in the land called ‘BSD City,’ and construct an office building called ‘Digital Hub,’ that consists of 3D printers, studio for making virtual reality (VR) contents, a high-speed data communication, and a city development axed by IT. The number of internet users in Indonesia in 2014 equaled 83.7 million, with this expected to increase to 123 million by 2018. In summary, secondary and tertiary industries are an investment target for Japanese companies. Japanese cars account for 90% of the automobile market in Indonesia. As car manufacturers have continued to increase production, the automobile components companies with monozukuri strategy have expanded but also localized. In the future, the pyramid-like structure of an industrial society consisting of skilled small and mid-sized enterprises as a base could be realized. That becomes similar to Japan’s pyramid of an automobile industry. Prospective Global Markets 127

Another prospective industry is aluminum and fabrication. More investment in aluminum refineries in Indonesia could be realized, although the capital required is very large. Given sizeable bauxite reserves, reverse economic development from the secondary to the primary industry might take place in the future. Large-scale retail companies like Aeon and small-sized retail convenience stores like 7-Eleven have different sales approaches with kikubari way of sales to grasp the Indonesian market. The word kikubari means vigilant and careful attention, but the Japanese way of kikubari is to pay more attention to the person and to think about him from his standpoint. One of the high-risk factors in Indonesia is flooding. According to the Netherlands’ national research institute, ‘Deltares,’ Jakarta sunk by about 200 centimeters between 1900 and 2013, the result being that 40% of the former land area is now under sea level; it is known as the ‘zero-meter area.’ The new submergence had begun in 2014, and is in the process and will drop by 180 centimeters till 2025 largely because of groundwater pumping. Focusing on this reality, public and private companies should consider recycling and reuse of domestic sewage and industrial wastewater. As such, Wastewater treatment facilities or plant as well as desalina- tion plants will present likely business opportunities.

Sri Lanka

Out of the nine companies examined in Chap. 4, only YKK has invested in Sri Lanka using the monozukuri strategy. Sri Jayewardenepura Kotte (also called Kotte) is the official capital of Sri Lanka and is home to the administrative functions of the government. It is located within the urban area of Colombo, the largest city in the country. A total of 20.6 million people live across 65,610km2, with 35% of the population in Colombo. The population is growing by around 0.4% per annum. According to a national census in 2012, the population consists of 74.9% Sinhalese, 11.2% Sri Lankan Tamils, 9.2% Sri Lankan Moors, 4.2% Indian Tamils, and 0.5% others. Sri Lanka is a democratic republic and a unitary constitutional state which is governed by a semi-presidential system, with a mixture of 128 K. Yamazaki

presidential and parliamentary systems. Most provisions of the constitution can be amended by a two-thirds majority in parliament. Maithripala Sirisena has been the seventh president of Sri Lanka since 2015, and he was the first president to come from Western Province. He is an agricul- turist and does not belong to the Sri Lankan political elite. The friendly relationship between Sri Lanka and Japan originated at the San Francisco Peace Conference in 1951. Sri Lanka argued for a free Japan and refused to accept payment of reparations for World War II because it believed it would harm Japan’s economy; many countries were reluctant to adopt such a position. From the 1960s until Sri Lanka’s civil war in 1983, Japanese MNEs had invested in the country, especially in primary and light industry. Up to 1972, the country had been called ‘Ceylon,’ and ‘Ceylon Tea’ was and is a highly regarded brand which had been popular in Japan. During the war, companies in primary industry closed their operations. Noritake Co., Ltd., headquartered in Nagoya, began manufacturing bone china in 1973 at Noritake Lankan Porcelain (Pvt.) Ltd. which employed about 920 workers. Even during the conflict, two Japanese electronics manufacturers, FDK Corporation, headquartered in Tokyo, and TOSSLEC Co., Ltd., headquartered in Kyoto, started operations in Sri Lanka. The former established FDK Lanka having monozukuri strategy for manufactured electronics components and mod- ules, and the latter, TOS Lanka, built printed boards. YKK, a noted manufacturer of fasteners, started operations at YKK Lanka (Pvt.) Ltd. during the civil war in 2001, employing approximately 300 people. The company has more than 180 customers in Sri Lanka, 61% of them in Colombo and its outskirts. All apparel products that contain YKK zippers are exported to the EU and USA. After the government gained ascendancy over the Tamil Tigers in May 2009, Okaya Electric Industries Co., Ltd., the first company to manufacture film capacitors for noise sup- pression and spark quenchers in Sri Lanka, invested US$30 million and established Okaya Lanka (Pvt) Ltd., employing about 1700 local people by 2011. The products made by the three above-mentioned electronics components companies are exported all over the world. Relations between Sri Lanka and China began as soon as the People’s Republic of China was formed in 1949. The two countries signed an important Rice-Rubber Pact in 1952. Sri Lanka played a vital role at the Prospective Global Markets 129

Asian-African Conference in 1955, which was an important step in the crystallization of the Non-Aligned Movement (NAM). The country has played an important role in the South Asian Association for Regional Cooperation (SAARC) from its beginning. SAARC was established in 1985 to promote regional cooperation and consists of Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. Furthermore, Sri Lanka joined the ASEAN Regional Forum (ARF) and tried to strengthen relationships amongst the South East Asian countries. However, the relationship between Sri Lanka and India became tense under the government of J.R. Jayewardene, the second president of Sri Lanka (1978–1989). As a result, India intervened in the civil war and subsequently deployed an Indian peacekeeping force in 1987. Mahendra Rājapaksa, the sixth president (2005–2015) and leader of the Sri Lanka Freedom Party, maintained a certain distance from India, but as India is a close related country historically and culturally, Sri Lanka has continued her efforts to cultivate an excellent rapport with its neighbor especially with respect to military security. Meanwhile, Sri Lanka enjoys positive relations with Russia and Pakistan. The IMF disbursed US$162.6 million to Sri Lanka between June and November 2016. While inflation abated, credit growth remained strong. The central bank indicated its readiness to tighten monetary policy further if inflationary pressures reemerged or credit growth persisted. The authorities would continue to build up reserves through outright pur- chases while allowing for greater exchange rate flexibility. The banking sector is well capitalized, although foreign reserves decreased to US$4.5 billion in January 2017 from 2015. Although Sri Lanka has recovered from the civil war, the economy is still fragile. Economic and social development has been carried out with the assistance of the developed countries and China. Owing to the restoration of demand at the end of civil war, economic growth rose steeply to 9.1% in 2012, with further expansions of 4.9% in 2014 and 4.8% in 2015. The unemployment rate was 4.7% in 2015, and inflation has been in single digits during the last five years, standing at 3.9% in 2016. Over 2 million people visit Sri Lanka every year, this helped by the improvement in security. The international trade balance has improved, with 130 K. Yamazaki exports up by 5.6% in 2015 and import down by 2.5% because of lower oil demand. Sri Lanka has 12 Export Processing Zones (EPZ), and four EPZs are located in the Greater Colombo area, with ten Japanese companies including FDK, Okaya, TOSSLEC, and YKK, operating there. Looking at FDI in 2014 and 2015, the top five origin countries were China, Hong Kong, Malaysia, UK and USA. Judging from the advantages of high- quality human resources but also fairly low wages and a reasonable security environment, Sri Lanka may attract increased FDI, although rising wages high and costly electricity are downsides. Three fields may be considered for successful FDI in Sri Lanka: (1) Utilization of the country’s natural resources such as coconuts and teas in addition to IT outsourcing, (2) Using Sri Lanka’s geographical advantage of being midway between the Far East and South-East Asia, and Europe and Africa to manufacture and export automobile components and highly value-added electronics parts, and (3) Targeting the domestic middle class and the tourism sector with branded goods.

Vietnam

Out of our nine case study companies, Denso Corporation, Furukawa Electric Co., Ltd., Mabuchi Motor Co., Ltd., Yamaha Motor Co. and YKK Corporation have invested in Vietnam as part of their monozukuri strategy. According to the Statistics Bureau of Vietnam, in 2016, around 85% of the 93 million population are people from the Viet or Kinh, a largely homogeneous and social ethnic group. The group possess significant political and economic influence. However, about 50 ethnic minority groups live in Vietnam. Religions in Vietnam are as follows; Vietnamese folk religions or unbelievers account for 73% of the population, Buddhism 12%, Catholicism 7%, Caodaism 5%, Protestantism 2% and others 1%. After the Paris Peace Accords in 1973, North Vietnam started a full- scale war offensive, culminating in the Fall of Saigon on 30 April 1975. North and South Vietnam were united to form the Socialist Republic of Vietnam in 1976. The war left Vietnam devastated, but eventually Prospective Global Markets 131

recovered under the Communist Party. The Party has performed numerous key administrative and executive functions in addition to controlling state appointments as well as setting national policy. Although the state remains officially committed to socialism as its defining creed, the government’s economic policies have become increasingly capitalist, this sometimes referred to as capitalistic communism. The National Assembly of Vietnam is the legislature and is made up of 498 members. It is superior to both the executive and judicial branches, with all government ministers being appointed from members of the National Assembly. The prime minister of Vietnam is the head of government, presiding over a council of ministers composed of three deputy prime ministers and the heads of 26 ministries and commissions, although the president of Vietnam is the titular head of state and the nominal commander-in-chief of the military, serving as the chairman of the Council of Supreme Defense and Security. Vietnam is divided into 58 provinces, and there are also five municipalities, which are administratively on the same level as provinces. The Supreme People’s Court of Vietnam, headed by a chief justice, is the country’s highest court of appeal, although it is also answerable to the National Assembly. Provincial municipal courts and numerous local courts are beneath the Supreme People’s Court. Military courts possess a special jurisdiction in matters of national security. Vietnam restored diplomatic ties with Japan in 1973, with New Zealand in 1995, and with Pakistan in 2000. Vietnamese/US relations improved in August 1995 when both nations upgraded their liaison offices to embassy status. President Obama further normalized relations with Vietnam after his announcement of a lifting of an arms embargo on sales of lethal weapons to Vietnam in 2016. Vietnam holds membership of 63 international organizations, including the United Nations, ASEAN, NAM, the International Organization of the Francophonie and the WTO. It also maintains relations with over 650 non-governmental organizations. In terms of financial aid to Vietnam, Japan is the largest donor, followed by South Korea, France, Australia and Germany (Table 5.1). Vietnam has been for much of its history a predominantly agricultural civilization based on wet rice cultivation. There is also an industry for 132 K. Yamazaki

Table 5.1 Japan’s aid to Vietnam: 2011 to 2015 Unit: US$M 2011 2012 2013 2014 2015 Yen Loans 2700 2029 2020 1124 1788 Grant Aid 55 17 15 15 39 Technological Cooperation 105 85 83 77 101 Total Aid Amount 2860 2131 2118 1216 1928 Note: Conversion Rate: 100 yen/$ Source: Ministry of Foreign Affairs of Japan bauxite mining in Vietnam, an important material for producing aluminum. The Vietnamese economy is shaped primarily by the Communist Party in its Five-Year Plan. This plan is drawn up through the plenary sessions of the Central Committee and national congresses. In 1986, the Sixth National Congress of the Communist Party introduced socialist-oriented market and economic reforms as a part of the Doi Moi programs. Private ownership was encouraged in industry, commerce and agriculture. Thanks largely to these reforms, Vietnam achieved average annual growth of around 8% between 1990 and 1997, and the economy continued growing at an annual rate of around 7% from 2000 to 2005. As a result, Vietnam became one of the world’s fastest-growing economies. Growth remained strong even in the face of the global recession in the late 2000s, coming in at 6.8% in 2010, although year-on-year inflation hit a high 11.8% in December 2010. The Vietnamese currency, the Dong, was devalued three times in 2010 alone. Manufacturing, information technology and high-tech industries now form a large and fast-growing part of the national economy. Though Vietnam was a relative newcomer to the oil industry, it was the third- largest oil producer in Southeast Asia in 2011, with a total output of 318,000 barrels per day, equivalent to 50,600m3. In 2010, Vietnam was ranked as the eighth largest crude petroleum producer in the Asia and Pacific region. Deep poverty, defined as the percentage of the population living on less than $1 per day, has declined significantly in Vietnam, and the relative poverty rate is now less than that of China, India, and the Philippines. This decline in the poverty rate can be attributed to equitable economic Prospective Global Markets 133 policies aimed at improving living standards and preventing a rise in inequality; these policies have included egalitarian land distribution during the initial stages of the Doi Moi program, investment in poorer remote areas and subsidizing of education and healthcare. Saigon Trade Center is one of the first skyscrapers to be built in Ho Chi Minh City after the Doi Moi reforms. Since the early 2000s, Vietnam has applied sequenced trade liberalization, a two-track approach opening some sectors of the economy to international markets while protecting others. Vietnam became a member of the WTO in 2007 and is now one of Asia’s most open economies: (1) external trade was valued at around 160% of GDP in 2006, more than twice the ratio for China and over four times the ratio for India, and (2) Vietnam’s chief trading partners include China, Japan, Australia, the ASEAN countries, USA and Western Europe. Anti-China demonstrations occurred in 2014, ending with riot- ers destroying the premises of hundreds of foreign businesses. In 2014, Vietnam negotiated a free-trade agreement with the European Union (EU), giving the country access to the EU’s Generalized System of Preferences. This provides preferential access to European markets for developing countries through reduced tariffs. This helped to increase Vietnam’s GDP to US$200 billion in 2016. Figure 5.1 shows how the economy change each year from 2005 to 2016. During these 12 years, the average rate of growth, inflation and unemployment were 6.2%, 9.0% and 4.1% respectively. Vietnam’s Customs Office reported in July 2013 that the total value of international merchandise trade for the first half of that year was US$124 billion, 15.7% higher than the same period in 2012. Mobile phones and their components were both imported and exported in large numbers, while in the natural resources market, crude oil was a top-ranking export; high levels of iron and steel were imported during the period. The USA was the country that purchased the highest amount of Vietnamese exports, while Chinese goods were the most popular Vietnamese imports. As a result of several land reform measures, Vietnam has become a major exporter of agricultural products. It is now the world’s largest producer of cashew nuts with a one-third global share, the largest producer of black pepper accounting for one-third of the world’s market, and the second-largest rice exporter in the world after Thailand. Vietnam is also 134 K. Yamazaki

23.0

18.6

9.2 9.2 8.3 8.3 7.6 7.5 7.0 7.1 6.9 6.6 6.4 6.2 6.1 6.2 5.7 6.0 5.3 5.4 5.3 5.4 4.8 4.6 4.7 4.6 4.3 4.1 3.6 3.6 3.5 3.2 3.4 3.2 3.3 2.7

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP Growth Rate Consumer Price Increase Rate Unemployment Rate

Fig. 5.1 Main economic results (2005–2016) the world’s second-largest exporter of coffee. Other primary exports include tea, rubber and fish products. However, agriculture’s share of Vietnam’s GDP has fallen in recent decades from 42% in 1989 to 20% in 2006, as the size of the country’s secondary sector has rapidly expanded. Vietnam education system consists of an extensive state-controlled network of schools, colleges and universities, and a growing number of privately run institutions, too. General education in Vietnam is divided into five categories: kindergarten, elementary schools, middle schools, high schools, and universities. Most vocational training schools are included in either high schools or universities. A large number of public schools have been constructed across the country to raise the national literacy rate, which stood at 90.3% in 2008. Japan and South Korea are building their long interests in the country, underpinned by cheap labor and a consumer market of 90 million people. The Financial Times dated 2 March 2015 stated that ‘Vietnam opens the door to hard money and soft power from Japan and South Korea.’ For Hanoi, there was a political imperative to draw more foreign investments Prospective Global Markets 135 into the country because of structural economic problems, such as bad debts and inefficient state companies. Japanese FDI in Vietnam increased by more than a triple amount of South Korea’s. As a result the former increased to $9 billion between 2011 and 2014 while the latter amounted to $3 billion averagely in the previous four years. South Korean FDI in Vietnam in both 2013 and 2014 totaled US$2.6 billion. Haseko Corporation, the property developer, has started building a $17 million rental flat complex in Hanoi while Aeon of Japan, which is Asia’s biggest retailer, opened two shopping centers in Vietnam in 2014 and bought stakes in two large local supermarket chains. In the case of South Korea, Samsung, the electronics company, has taken advantage of tax and regulatory incentives to open two mobile phone assembly plants in Vietnam and has started building factories for the production of display panels, home appliances and electrical parts. Vietnam will probably not fully escape its dependence on China. The two countries have had their differences, including a 1979 border war to a disagreement on the high seas in 2014. However, the increase in FDI by Japan and South Korea in Vietnam seemed to be an early omen of how regional relationships were being shaped. This focus on foreign investment as well as on trade might in fact grow stronger if the ASEAN single market ever becomes a reality. Japan’s FDI has been carried out by not only large listed corporations but also small- and middle-sized firms, spread across a variety of sectors and areas within Vietnam. Taking Hue Foods Co., Ltd. as an example, the company invested US$2.3 million in Hue City, in central Vietnam. It manufactures and sells sakes and other liquors, and hired 75 people in Vietnam. Toyo Piano Vietnam Co., Ltd. in Ho Chi Minh employs 70 people manufacturing and repairing pianos. Daiwa Vietnam Ltd. invested US$45 million in Da Na Ng and hired 1800 people producing fishing equipment and sports goods. Eiwa Rubber MFG. Co., Ltd. is located in Hanoi and has US$0.2 million of capital. It manufactures rubber goods for industrial use and employs 180 people locally. In the tertiary sector, Nakazawa Ltd. sells watches, eyeglasses and jewels inside the Aeon Mall in Vietnam with kikubari and omotenashi. The wordomotenashi is literally ‘be received warmly or cordially’, and it is the same as kikubari, namely from the customer’s viewpoint. The shop in Aeon Mall was Nakazawa’s first outlet overseas, and they subsequently 136 K. Yamazaki opened shops in Cambodia and China. The custom to sell such products in these countries is to sell them without gift wrapping or aftercare. Finally, ‘China Plus One’ generally means that Vietnam is suitable for FDI ahead of Laos or Cambodia as it has competitive advantages in terms of human resources and the country is growing across most industries. Consequently, GDP per capita is increasing and Vietnam is becoming a prospective global market.

The Market of African Continent

Before we discuss Kenya, Nigeria and South Africa, a bird’s eye view of Africa is presented. Most of the countries on the African Continent used to be called ‘terra incognita,’ or unknown land. Prior to the 1990s, business people would pay attention to the BRICS and the Asian region as prospective markets. Even today, with the exception of North African countries, Africa does not usually feature on the corporate radar, especially in Japan. Africa’s land size is the same as USA, China and Western Europe combined. The continent consists of 54 independent countries and is home to some 190 culture groups. Europe’s colonial territories contained hundreds of diverse and independent groups, with no common history, culture, language or religion. Nigeria, for example, contains as many as 250 ethno-linguistic groups (Meredith 2006). Geographically speaking, African countries can be categorized into two, Northern African and Sub-Saharan. The former includes Algeria, Egypt, Libyan, Morocco, Tunisia, and Western Sahara. The latter is made up the other 49 African countries. According to the IMF’s World Economic Outlook Database, April 2015, GDP in the Sub-Saharan countries increased to US$1670 billion in 2014 compared to US$1576 billion in 2013. In the decade after 2003, GDP rose by 3.4 times. Of the GDP generated by the Sub-Saharan region, Nigeria accounted for 34% and South Africa 21%. Western Sahara is not independent, and is under Moroccan rule. It used to be under Spanish rule, but Spain abandoned it in 1976. The people in Western Saharan continue to fight for their Prospective Global Markets 137

independence. The country is rich in rock phosphate, and the biggest city is Aiun. The habitants are Arabs and Berbers. African economic output is generally focused on agriculture. The agricultural sector accounted for 32% of African GDP in 2015, and 65% of the working population. Economic activity is being boosted in some countries by relatively young workforces, including in Ethiopia, Ghana, Kenya and Tanzania, suggesting that Sub-Saharan countries that had previously depended on natural resources may now be able to begin the process of industrial development coupled with more advanced and agricultural techniques. Poverty and education disparities are still major problems in terms of development in Africa. Nevertheless, the share of the population able to receive electricity stood at 35% of the population in 2015, up from 22% in 1990, and primary school admission has increased from 50% to 80%. The absolute poverty rate (share of the population living on less than US$3.1 per day) account fell to 40% from 60%. In 2015, the average age of the population in Sub-Saharan countries was 18.3 years compared to 46.5 in Japan and 29.6 across the world. In 2050, one-fifth of the world’s 9.7 billion population shall live in Africa. At that time, the population of Nigeria will be higher than that of USA. The following are some ideas for assisting Japan’s growth strategy. First, the Japanese government could sign a free-trade deal with one of the following: East African Economic Community (EAC), composed of six African countries, Southern Africa Development Community (SADC), made up of 15 countries, and/or Economic Community for West African Countries (ECOWAS), consisting of 15 countries. Free-trade agreement among Japan and African countries will make these countries to stabilize their economies or markets additionally by Japanese aid program. These actions lead to a mid-consumer layer’s expansion. Second, Tokyo International Conference on African Development (TICAD) sponsored by the Japanese government is another way for pro- moting trade. The latest theme of the TICAD meeting was to discuss ‘exit from natural resource dependency,’ ‘establishment of health care system,’ and ‘social stabilization’ in Africa. Kaizen is the key management issue in Japan, and Japan may have an opportunity to disseminate this in Africa. One of the great results of a recent TICAD, held in September 2016, was 138 K. Yamazaki the signing by Marubeni Corporation, one of the five largest sogoshoshas in Japan, of a memorandum to cultivate cotton in Angola.

Kenya

Kenya covers an area of approximately 581,309km2 and lies almost exactly astride the equator. Following British rule in Kenya from 1888 to 1962, the country has had four presidents, in line with a constitutional provision which limits the presidential term to a maximum 10 years, made up of two 5-year terms. Mwai Kibaki, Kenya’s third president was re-elected in 2007, handing over to current President Uhuru Kenyatta in March 2012. Kenyatta is from the National Alliance (TNA) Party. He is the president and commander in chief of the defense forces. Kenya is a democratic republic with a presidential representative. The president is both head of state and head of government, and there is multi-party system. Executive power is exercised by the government and legislative power is vested in the government, the National Assembly and the Senate. The judiciary is independent of the executive and the legislature. Kenya is the biggest economy in East and Central Africa and has posted tremendous growth in the service sector, boosted by a rapid expansion in telecommunications and financial activity over the last decade; services accounted for 62% of GDP in 2015. Roughly 22% of GDP still comes from the unpredictable agricultural sector which employs 75% of the labor force. A small portion of the population relies on food aid. Manufacturing is the smallest sector, accounting for 16% of GDP. The country’s industrial activity, concentrated around the three largest urban centers, Nairobi, Mombasa and Kisumu, is dominated by food-processing, such as grain milling, beer production, and sugarcane crushing, as well as fabrication of consumer goods like motorcycles manufactured by knock- down method. There is also a cement producing industry. Kenya has an oil refinery that processes imported crude oil into petroleum products, mainly for the domestic market. Services and manufacturing only employ 25% of the labor force, but they account for 75% of GDP. Privatization of state corporations like Kenya Post and Telecommunications Company resulted in East Africa’s Prospective Global Markets 139 most profitable company, Safaricom. This has been helped by massive private investment, especially by Vodafone Group Plc. with a 40% equity investment. In 2015, Kenya’s GDP was US$60 billion, with a 5.6% growth rate, according to the World Bank. In addition, there was 6.9% inflation and in 2014 the rate of unemployment stood at 9.2%. The country has grown by around 4 -5% per annum 2009 helped by tourism and construction. Kenya’s services sector is dominated by tourism. The country’s warm climate is favorable for tourism especially during the drier season between September and March. The tourism sector has exhibited steady growth in most years since independence and by the late 1980s had become the country’s principal source of foreign exchange. Tourists, the largest number being from Germany and UK, are attracted mainly to beaches and game reserves, notably, the expansive East and Tsavo West National Park, which is 20,808km2 in size and is located in the southeast of the country. Tourists from the USA and Asia appear to prefer visiting the Masai Mara Safari Park. The ‘Big Five’ game animals of Africa, namely the lion, leopard, buffalo, rhinoceros, and elephant, can be found here. A significant population of other wild animals, reptiles and birds is located in other national parks and game reserves in Kenya. The annual animal migration occurs between June and September with millions of animals moving, this in turn attracting valuable tourism. Two million wildebeest migrate a distance of 2900 kilometers from the Serengeti in neighboring Tanzania to the Masai Mara in Kenya, searching for food and water. Flowers, tea, and coffee are also important foreign exchange earners. Kenya is the third-largest exporter of cut flowers in the world. Roughly half of Kenya’s 127 flower farms are concentrated around Lake Naivasha, 90 kilometers northwest of Nairobi. To speed their export, Nairobi Airport has a terminal dedicated to the transport of flowers and vegetables. Presently, there are also numerous shopping malls in Kenya. Farming is concentrated in the Mount Kenya region. A consortium led by the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT) has had some success in helping farmers grow new pigeon pea varieties, instead of maize, in particularly dry areas. Pigeon peas are particularly drought resistant, so can be grown in areas with less than 650 millimeters of annual rainfall. Successive projects have encouraged the 140 K. Yamazaki commercialization of legumes, by stimulating the growth of local seed production and agrodealer networks for distribution and marketing. This work, which includes linking producers to wholesalers, has helped to increase local producer prices by 20–25% in Nairobi and Mombasa. The commercialization of the pigeon pea is now enabling some farmers to buy assets, ranging from mobile phones to productive land and livestock, and it is opening pathways for them to move out of poverty. The benefits flowing from US’s African Growth and Opportunity Act (AGOA) has given a boost to Kenya’s manufacturing sector in recent years. Since AGOA took effect in 2000, Kenya’s clothing exports to USA increased from US$44 million to US$270 million in 2006. Domestic initiatives to strengthen manufacturing include favorable tax measures, such as the removal of duties on capital equipment and other raw materials. Although Kenya is the biggest and most advanced economy in East and Central Africa, and has an affluent urban minority, it has a Human Development Index (HDI) of 0.519, ranking it a poor 145th out of 186 countries across the world. In 2017, Kenya ranked 92nd in the World Bank’s ease of doing business report, although this was up from 113th out of 190 countries in 2016. Kenya had a population of approximately 48 million as of January 2017. The country has a young population, with 73% of citizens aged below 30; there has been rapid population growth over the last century, going from 2.9 million to 40 million. Kenya has an ethnically diverse population, which includes most major racial and linguistic groups found in Africa. There are an estimated 47 different communities, the largest being Bantus (67% of the population) and Nilotes (30%). Cushitic groups form a small ethnic minority, as groups with foreign roots include Kenyan Arabs, Somalis, Asians and Europeans. The majority (83%) of Kenyans are followers of Christianity, with 48% regarding themselves as Protestant and 24% as Roman Catholic. The Presbyterian Church of East Africa has three million followers in Kenya and the surrounding countries. There are smaller conservative Reformed churches, the Africa Evangelical Presbyterian Church, the Independent Presbyterian Church in Kenya, and the Reformed. Minorities of other faiths exist, including Muslims (11.2% of the Prospective Global Markets 141

population), indigenous beliefs (1.7%), and nonreligious (2.4%). In addition, there is a significant Hindu population in Kenya of around 300,000, who have played a key role in the local economy. Kenya is a linguistically diverse country where a majority of the population speaks at least three languages. In addition to 42 ethnic dialects, English is the official language while a variety of Swahili is the national language spoken by almost every Kenyan. Sheng, a mixture of Swahili, English and some other indigenous language, is also commonly spoken in urban areas and has gained popularity among politicians and advertis- ing agencies who try to diversify their audience and target the youth population. In Kenya, primary education is the first phase of the formal education system. It usually starts at six years of age and runs for eight years. The main purpose of primary education is to prepare children to participate fully in the social, political and economic well-being of the country, and was initially the result of ‘harambee’ or self-help efforts to provide equal educational opportunities to all through the provision of free primary education. Almost all primary schools in the country are in the public sector and depend on the government for their operational expenses. Secondary school usually starts at 14 and continues for four years. The current secondary education program is geared towards meeting the needs of both the students that terminate their education after secondary school and those that proceed to higher education. In this context, the new secondary school curriculum lays greater emphasis on job-oriented courses, such as business and technical aptitude. There are two categories of secondary schools in Kenya, namely public and private schools. Public secondary schools are funded by national or local governments and managed by a Board of Governors and Parent-Teacher Associations. Private schools, on the other hand, are established and managed by private individuals or organizations. In response to the rapidly increasing number of primary school leavers seeking entry to secondary education, there were nearly 3000 secondary schools with a total enrolment of 620,000 students in 2015, compared with a total enrolment of 30,120 students in only 151 secondary schools in 1963. Of the 2015 total, slightly over 40% were are girls. The rapid expansion at the secondary level has been the result of the vigorous 142 K. Yamazaki

‘harambee’ movement that has led to the establishment of numerous community secondary schools. In the post-secondary school system, there are institutions that train high school finishers in various vocational subjects such as carpentry, accounts, welding, mechanics, catering and teaching, leading to certifi- cates or diplomas. Kenya has 39 universities, the five best known being the University of Nairobi, Moi University, Kenyatta University, Egerton University, and Jomo Kenyatta University of Agriculture and Technology. The author and some members of JMNESG visited the following Japanese-Kenyan companies in 2015; (1) Nairobi Office of Honda Motor Southern Africa (PTY) Ltd. for the sales of Honda vehicles, (2) Honda Motorcycle Kenya Ltd., for the manufacture of motorcycles by SKD, (3) Toyota Tsusho East Africa Ltd., for sales of all Toyota automobiles, (4) Second Channel Business Division at Toyota Kenya Limited, for OEM manufacturing of Yamaha motorcycles by CKD, (5) Mombasa Port Development Project at Toyo Construction Co., Ltd., In addition, the author visited the Associated Vehicle Assemblers Ltd., which assembles vehicles by contract with various foreign auto manufacturers, including Toyota and others without any domestic technical or capital assistance. CKD stands for ‘completely knocked down’, and SKD for ‘semi- knocked downed’. In accordance with CKD regulations in Kenya, the phrase ‘unassembled motor vehicles’ is used. The current law on CKD in Kenya was enacted in 1993 with some amendments in 2003. Kenya has been pushing for the adoption of CKD laws through the EAC common market protocol. Once approved, the EAC law will be applicable in place of the current Kenyan laws. The law stipulates that each sub-assembly shall be imported unattached to other sub-assemblies, and the following list of items should be excluded from sub-assemblies/parts of the CKD kit; (1) Oils, (2) Greases, (3) Fuels, (4) Hydraulic fluid, (5) Sealers, (6) Adhesives, (7) Paint and (8) Toughened flat glass. Japanese corporations have also been trying to tap in Kenya’s growing middle class. For example, Toridoll Kenya Ltd. opened the first shop called ‘teriyaki Japan’ in March 2015 and employed about 45 workers; it was aiming at establishing food franchising to expand to 20 shops by the end of 2017. Africa Scan Ltd. has managed four shops providing unique services, such as charging power for cellular phones, warming up foods Prospective Global Markets 143 with microwaves, and a health check service. It will expand to 100 shops in the near future through its own operations and by franchising. Hankyu Hanshin Express Co., Ltd. has established a physical distribution service to boost transportation ties between the EAC countries, and has begun third-party logistics for Japanese-Kenyan companies. As far as the Kenyan market is concerned, investors should take note of Al-Shabaab, the Islamist militant group. The group has been battling against the UN-backed government in Somalia, and has carried out a string of attacks in Kenya. The group, which was allied to Al-Qaeda, has been pushed out of most of the main towns that it once controlled, but it remains a potent threat, especially in the northern part of Kenya. This aside, Kenya should be considered one of the most promising African markets because of its ample skillful workforce based on an established education system. Furthermore, Kenya is an important player in the EAC.

Nigeria

Nigeria secured independence in 1960 and in 1961 annexed the north of British Cameroons. The country has the largest population of any African country at 120 million, and the greatest diversity of culture, cities and terrain. With a total land area of 923,768km2, Nigeria is the 14th largest country in Africa. Its coastline, on the Gulf of Guinea, stretches 774 kilometers. Nigeria shares its international border of 4470 kilometers with four neighbors: Benin, Chad, Cameroon and Niger. Lagos was the capital until 1989, but the government moved the capital to Abuja located in the geographical center of Nigeria. As of the 2006 census, Nigeria had eight cities with a population of over 1 million people, the largest to the smallest being Lagos, Kano, Ibadan, Benin City and Port Harcourt. Lagos is the largest city in Africa, with a population of over 12 million including its urban area. Nigeria is a federal republic composed of 36 states, and a Capital Territory, which are further sub-divided into 774 local government areas (LGAs). The country has an elected president and a bicameral legislature. It operates a presidential system of government with three distinct but 144 K. Yamazaki complementary arms, namely the executive, the legislature and the judiciary, acting as a system of checks and balances. The executive body of government at the federal level consists of the president, the vice president and other members of the Federal Executive Council, while at the state level, it is made up of a governor, a deputy governor and other members of the State Executive Council. The federal legislature is comprised of 109 Senators and 360 members of the House of Representatives. The two make up the National Assembly. At the state level, legislature are called is the House of Assembly. The president, the governor, their deputies, as well as members of the legislatures at both federal and state levels are elected, under the present constitution, for four years, renewable once. The Senate president is the head of the federal legislature. The judiciary interprets laws and adjudi- cates in conflicts between the executive and the legislature. It carries out these functions through the various established courts. The Supreme Court is the highest court in the land, followed by the Court of Appeal, the Federal High Court, Magistrates’ Court, Area Courts and Customary Courts. There are three distinct systems of law in Nigeria: (1) Common law, derived from British common law and post-independence rulings, (2) Customary law, derived from indigenous traditional norms and practice, (3) Sharia law, used only in the predominantly Muslim northern states of the country. This is an Islamic legal system that was in use long before colonial administration. According to the World Bank, Nigeria is the world’s 20th largest economy, worth more than US$487 billion in 2015. It overtook South Africa to become Africa’s largest economy in 2014. The 2013 debt-to-GDP ratio was 11%. Nigeria is considered an emerging market in world economy but also a global power partly in international politics because of its influence in Africa, and a middle power in international affairs. Other economic data are as follows: (1) GDP per capita of US$2790 in 2015, (2) 2.7% economic growth in 2015, (3) 15.7% inflation in 2016, and (4) 5.0% unemployment in 2016. The official language is English. Around 58% of the populations is Christian and 41% is Muslim, with a tiny minority of adherents to Animism and other religions. Virtually all the indigenous races of Africa are represented in Nigeria, hence the great diversity of people and culture. Prospective Global Markets 145

Today, there are estimated to be more than 250 ethnic groups in Nigeria. While no single group dominates, four major groups constitute 60% of the population: Hausa and Fulani in the north, Yoruba in the west, and Igbo in the east. Education in Nigeria is overseen by the Ministry of Education. Local authorities take responsibility for implementing policy for state-controlled public education and state schools at a regional level. The education system is divided into kindergarten, primary education, secondary education and tertiary education. After the oil boom of the 1970s, higher education was expanded so that it would reach every region of Nigeria. Roughly 68% of the Nigerian population was literate in 2016, the rate for men being 76% and for 61% for women. Nigeria provides government-supported education for free, but attendance is not compulsory at any level, and certain groups, such as nomads and the handicapped, do not always the opportunities available. The education system consists of six years of primary school, three years of junior secondary school, three years of senior secondary school, and four, five or six years of university education leading to a bachelor’s degree. A foreign company may invest and participate in the operations of any enterprise in Nigeria. It is natural, however, that the company wishing to set up business operations in the country should take all steps necessary to obtain the incorporation of a Nigerian branch or subsidiary as a separate entity for this purpose. A company may not carry on business in Nigeria or exercise any of the powers of a registered company until it is incorporated. A foreign investor may incorporate a Nigerian branch or subsidiary by granting a power of attorney to a qualified solicitor in Nigeria. The incorporation documents in this instance disclose that the solicitor is merely acting as an ‘agent’ of a ‘principal’ whose name(s) should also appear in the documents. The power of attorney should be designed to lapse and the appointed solicitor cease to function upon the conclusion of all registration formalities. The locally incorporated branch or subsidiary company must then apply to the Nigerian Investment Promotion Commission (NIPC) for a ‘business permit’ and other requisite permits and ‘licenses’. Due to higher inflation, the Federal Executive Council has recommended further wage increases and has recommended an upward revi- sion of the minimum wage in order to incentivize workers. An employer 146 K. Yamazaki hiring 50 or more persons is required to pay the minimum wage, defined as the total remuneration payable to a worker in accordance with National Minimum Wage Act. According to the Factories Act, Nigerian law makes general and special provisions for the health, safety and welfare of persons employed in places statutorily defined as ‘factories’ and for which a certificate of registration is required by law. It makes general provisions as to the standards of cleanliness, crowding, ventilation, lighting, drainage of floors, and sani- tary conveniences, including that all factories must have potable water and washing facilities. It is mandatory that all accidents and industrial diseases be notified to the nearest inspector of factories and be investi- gated; it is prohibited for the occupier of a factory to make any deduc- tions from the wages of any employee in respect of anything to be done or provided in pursuance of the Factories Act. Let us consider the history of Nigeria, in particular its ‘struggle for freedom’ between 1922 and 1959. This struggle led the British to grant some concessions to the Nigerian people. This gave rise to a series of con- stitutions, but also added to feelings of hostilities towards the colonial power. On 1 October 1960, Nigeria became self-governing from British colonial rule and was administered at the center by the federal government and three regional governments in the east, west and north of the country. In 1963, the midwest region was carved out of the western region, resulting in a federation of four regions. During this First Republic, a parliamentary system of government was in operation. This lasted until January 1966. In the second Republic of President Shehu Shagari, Nigeria adopted a presidential system of government with an executive president as the head of the federal government. The Shagari administration was in power until 1983 when it was overthrown in a coup and the military once again ran the country. Nigeria saw a further round of military governments until 1993 when General Ibrahim Babangida, the head of the military government, was deposed. This interim administration lasted for only three months. The new military administration was headed by General Sani Abacha. Prospective Global Markets 147

Abacha’s government ruled the country from 1993 to 1998. It must be pointed out that during the particular regime, Nigeria faced tremendous opposition from the international community over human rights abuses, culminating in its suspension from the Commonwealth. With the sudden death of General Abacha in June 1998, General Abdulsalami Abubakar headed the new military administration. The government announced and implemented a political transition program that ushered in a new civilian government in May 1999. Thus, the Abubakar administration helped to restore democracy in Nigeria. Executive governors were also sworn-in in the 36 states. It is evident from the above political history that the military dominated power in Nigeria for 30 years. The country is still undergoing political transition and will continue to strive to nurture democracy. The nation has come to accept that civilian democracy is the form of government that can guarantee full participation by the entire citizenry, and ensure good governance and a quicker socio-economic development. Nigeria elected Olusegun Obasanjo, the former military head of state, as its new president in 1999. Although the elections which brought Obasanjo to power in 1999 and again in 2003 were condemned as neither free nor fair, Nigeria has shown marked improvements in its attempts to tackle government corruption. In the March 2015 election, Muhammadu Buhari defeated Goodluck Jonathan by roughly 2 million votes. Observers generally praised the election as being fair. Jonathan was praised for conceding defeat, thereby limiting the risk of unrest. Buhari emphasized three major policies goals:

(1) To transform the country in line with democratic principles into a land of opportunity, equity, and prosperity for all and to lower corruption. (2) To eliminate Boko Haram. (3) To achieve steady economic growth without depending on oil.

Before the 2015 presidential election, northern Muslims were broadly aligning behind General Muhammadu Buhari, while the Christian population in the south was expected to vote for Goodluck Jonathan, the incumbent. Nigeria alongside allied forces from neighboring Chad, Niger 148 K. Yamazaki and Cameroon claimed to have recaptured all but three of 20 local government areas held by Boko Haram at the beginning of 2015. Roughly 300 former South African soldiers, many of them from a disbanded mer- cenary group, Executive Outcomes, had been supporting an attempt by Nigerian government forces to reclaim territory captured by the terrorist group ahead of the election. It was argued in some quarters that Jonathan was using the battle against Boko Haram as a pretext to remain president, by ‘hook or crook’ (Financial Times 2015).? Either way, with Buhari elected president, it was expected that the government would recapture all the main territory ruled by Boko Haram in northern Nigeria. Furthermore, it could be realized if GDP per capita in Northern Nigeria were raised and the policy (3) in the previously mentioned were executed. During the oil boom of the 1970s, Nigeria accumulated significant foreign debt used to finance major infrastructure projects. With the fall in oil prices in the 1980s, Nigeria struggled to keep up with its loan payments and eventually defaulted on its principal debt repayments. Arrears and penalty interest accumulated on the unpaid principal, which increased the size of the debt. Following negotiations, Nigeria and its Paris Club creditors reached an agreement in October 2005 under which Nigeria repurchased its debt at a discount of approximately 60%. Nigeria used part of its oil profits to pay the residual 40%, freeing up at least US$1.15 billion annually for poverty reduction programs. Nigeria made history in April 2006 by becoming the first African country to completely pay off its debt (estimated at US$30 billion) owed to the Paris Club. Finance Minister Mrs. Ngozi Okonjo-Iweala wanted to boost revenue collection from non-oil sectors. She thought the root cause of this problem was that oil matters had been handled by a government department as opposed to a commercial enterprise. The reason that Malaysian oil company Petronas functions well is because it has been commercialized and made to open up its books. Nigeria needs to move in this direction (Financial Times 2015). Approximately 70% of Nigerian government revenue was generated by the sale of crude oil and natural gas in 2015. In the mid-1980s, Nigeria had 175 textile mills. However, 85% of the domestic textiles market was made up of illegal imports. Over the quarter-century that followed, all Prospective Global Markets 149 but 25 were closed. As a result, 325,000 people lost their jobs up to 2014 (Financial Times 2015). An unhealthy dependence on oil revenues was still apparent in the government’s budget in the 2010s. Valued-added oil products are all imported, worsening the trade balance. There is one oil refinery that was constructed by a Japanese company in the 1970s, but it has not been maintained properly. The government neither remedied outstanding problems nor constructed another refinery to help establish a down- stream industries, such as petrochemicals. Nigeria has a manufacturing industry which includes leather and textiles centered in Kano, Abeokuta, Onitsha and Lagos, and T-shirts, plastics and processed food. The country has a domestic auto manufacturing company called Innoson Vehicle Manufacturing Co., Ltd., located in Nnewi. It produces buses, SUVs and OEM car manufacturing for the French car maker, Peugeot, as well as for the English truck manufacturer, Bedford, which is a subsidiary of General Motors. Around 70% of required car parts are produced locally, with the rest imported from Japan, China and Germany. Nigeria also has a few electronics manufacturers, like Zinox, the first branded Nigerian computer and electronic gadgets firm. In 2013, Nigeria introduced an import duty on vehicles to encourage local manufacturing. In response, some foreign manufacturers companies like Nissan have set up local factories in Nigeria. Ogun is considered to be the main current industrial hub in Nigeria, as many factories are located there and more companies are moving in. Ogun followed by Lagos. Around 30 automobile assemblers, including Hyundai, Kia, Peugeot and VW, already had operations in Nigeria in 2016. Along with JMNESG members, the author visited Japanese-Nigerian companies as well as Nigerian companies and institutions in 2015. The former companies were Honda Automobile Western Africa Ltd. for automobiles, Honda Manufacturing (Nigeria) Ltd. for motorcycles, Koncept Autocentre Ltd. for the automobile dealer of Isuzu cars, Mitsubishi Shoji Kaisha (Nigeria) Ltd. for sogoshosha branch function at Mitsubishi Corporation, and West African Seasoning Co. Ltd. for the manufacture and sale of Ajinomoto products. The latter were Agricultural Services, Training Centre & Marketing Ltd., Angona Nigeria Ltd., Grand Cereals 150 K. Yamazaki

Ltd., HBC Resort Ltd., Integrated Dairies td., Command Headquarters of the Nigerian Police in Lagos State, Kewalram Chanral Group, Ministry of Mineral Development, National Productivity Centre, and Nike Art Gallery Ltd. Judging by the visit, FDI inflows might surpass expectations despite problems around country risk. ECOWAS is headquartered in Abuja. It consists of 15 countries and has a combined GDP of around US$720 billion. ECOWAS stands for the Economic Community of West African States, and is called CEDEAO in French. The more effective is ECOWAS, the more prosperous that Nigeria is likely to become in the future. Although downside risks exist for foreign investors considering Nigeria as a potential destination for investment such as high business costs and poor infrastructure, the country has a number of advantages which make it a better prospective commercial opportunity than many other African countries.

South Africa

South Africa has a population of around 56 million. In terms of ethnicity, 81% of the population is black, 9% is colored, 8% is white, and 2% is Indian/Asian. These ratios are similar across most of South Africa with the exception of Cape Town. About 80% of the population in Cape Town is non-black. South Africa does not have an ageing population concern, because the mode of population is zero to 4 year-age compared with 65 to 69 year-age in Japan. Power is distributed between the executive, the legislature and the judiciary, the last of which is independent. Pretoria is home to the executive, Bloemfontein the judiciary and Cape Town the legislature. Johannesburg is the biggest city followed by Durban; Johannesburg is also the commercial center of South Africa. The country’s total land area is 1,219,090km2, while the high altitude in places has a significant impact on vehicle performance. Around 70% of vehicles operate between 1500–1800 m above sea level. Prospective Global Markets 151

South Africa has 11 official languages. English is the dominant language in government, business and the media. In addition, South African Sign Language (SASL) was formally recognized in 1995. Politically, the country consists of the central government and nine states. Parliament is made up two chambers, a National Council of Provinces, the upper house, and a National Assembly, the lower house. The former consists of 90 members and the latter 400 representatives. Between 2000 and 2006 average annual growth was 4.3%. The worldwide recession affected the economy, with growth contracting by 1.5% in 2009; however, South Africa’s hosting of the football World Cup saw growth rebound to 3% in 2010. This was followed by further positive growth, albeit with a decline to just 1.3% in 2015. According to the World Bank, in 2015, GDP was US$334.3 billion, GNI per capita was US$6080, and inflation was 4.0%. The unemployment rate, however, was a very high 25.5% in 2015 and worsened to 26.5% in 2016. In 2015, agriculture accounted for just 2% of GDP, with key crops including maize, wheat, sugar cane, beans, potatoes, fruits and vegetables. The mining industry made up 8% of GDP in 2015, based on production of gold, platinum, iron ore, copper, chrome, manganese, nickel, diamonds, vanadium and titanium. Secondary industries comprised 12% of GDP, with 8% of GDP coming from cars and components, steel, chemicals, textiles, and food. Like USA, South Africa is an automobile society. There were 20 automotive brands in South Africa in 1995, increasing to 59 in 2017. Meanwhile, annual car sales have almost doubled to 600 thousand vehicles over this period. Toyota has been a market leader for nearly four decades. Diamond and gold reserves were found in the latter half of the nine- teenth century, this wealth trickling down to encourage the growth of manufacturing and tertiary sectors. The mining industry reached its peak in 1981, accounting for 23.7% of GDP in 1981. On the other hand, finance and insurance have expanded from 15% of GDP in 1991 to 21% of GDP in 2015. GDP by sector in 2015 was 10% for the primary sector, 21% for the secondary sector and 69% for the tertiary industry sector. In terms of international trade, mineral resources exports are still dominant. 152 K. Yamazaki

The Constitution of South Africa is the supreme rule of law in the country. The primary sources of South African law are Roman-Dutch mercantile law and English common law. The first European-based law in South Africa was introduced by the Dutch East India Company. In 1990, South African President Frederik Willem de Klerk removed the ban on the anti-apartheid movement. Apartheid was dismantled in 1991 and Nelson Mandela was released; he was elected president of South Africa in 1994. In 1998, Mandela was included in the ‘Time 100 Leaders & Revolutionaries’ as “the world’s most famous prisoner and now his country’s leader, he exemplifies a moral integrity that shines far beyond South Africa,” (Time, 13 April 1998). Thabo Mbeki was elected as the country’s second president in 1999, securing re-election in 2004. Mbeki resigned in 2008 after a decision by the African National Congress (ANC) to recall him. Later, Kgalema Motlanthe was elected as president in 2009, and the country’s fourth democratic election was held, electing Jacob Zuma as president; he was re-elected in 2014, but before his presidency was over, he was fired in February 2018 at ANC. Then Ramaphosa was elected as the President. Following the end of apartheid, South Africa joined the Organization of African Unity (OAU), the Conference of Non-Aligned Countries (CNAC) and the Commonwealth of Nations and the Southern African Development Community (SADC). The country also rejoined the United Nations. South Africa also became the only African country to join the G20. Meanwhile, the OAU merged with the African Union (AU) in 2002 when the AU was established. The AU consists of all African countries except Morocco, and is headquartered in Addis Ababa, Ethiopia. In addition, SADC was established in 1992 for the integration of regional economies and consists of 15 members. As of 2007, the adult literacy rate was 88.7%. South Africa has a 3-tier system of education starting with primary school, followed by high school and tertiary education in the form of academic universities and universities of technology. Students have twelve years of formal schooling, from grade 1 to 12. Grade R is a pre-primary foundation year. Primary schools span the first seven years of schooling, with five years spent in high school. The ‘Senior Certificate’ examination takes place at the end of grade 12 which must be passed in order to enter university. Prospective Global Markets 153

Under apartheid, schools for blacks were subject to discrimination through inadequate funding and a separate syllabus called Bantu Education, which was only designed to give them sufficient skills to work as laborers. In 2004, South Africa started reforming its higher education system, merging and incorporating small universities into larger institutions, and renaming all higher education institutions ‘university’ to redress these imbalances. By 2015, 1.4 million students in higher education had benefited from a financial aid scheme which was promulgated in 1999. Public universities in South Africa are divided into three types: traditional universities, which offer theoretically oriented university degrees; universities of technology called ‘Technikons’, which offer vocational oriented diplomas and degrees; and comprehensive universities, which offer both types of qualification. There are 23 public universities in South Africa: 11 traditional universities, six universities of technology and six comprehensive universities. Nearly 50 murders are committed every day in South Africa. In the year ended March 2014 there were 17,068 murders, giving a murder rate of 32.2 per 100,000, about five times higher than the global average of 6 per 100,000. Middle-class South Africans seek security in gated communities. The private security industry in South Africa is the largest in the world, with nearly 9000 registered companies and 400,000 registered active private security guards. Many emigrants from South Africa also state that crime was a big motivator for them to leave. Crime against the farming community has continued to be a major problem. According to the 2015 UNAIDS Report, South Africa had an estimated seven million people living with HIV, more than any other country in the world. The 2008 study revealed that HIV/AIDS infection in South Africa is distinctly divided along racial lines: 13.6% of Blacks are HIV-positive, whereas only 0.3% of Whites had the disease. There are many AIDS orphans who often depend on the state for care and financial support. It is estimated that there are 1.2 million orphaned children in South Africa. Along with JMNESG members, the author visited Japanese-South African companies as well as South African companies and institutions in 2010 and 2017. In 2010, the former were Hanwa Co., Ltd. in 154 K. Yamazaki

Johannesburg, Komatsu Southern Africa (Pty) Ltd., employing 1000 workers in technical support and sales of Komatsu machine and spare parts, Nissan South Africa (PTY) Ltd. in Rosslyn Plant, employing 2000 employees assembling 50,000 automobiles and Sojiz Corporation for sogoshosha activities. The latter in 2010 were Hernic Ferrochrome (Pty) Ltd. for producing ferrochrome, Hisense South Africa for assembling TV products, Productivity S.A. for management research and consulting work and Samancor Chrome Ltd. for mining and producing chromes. The companies visited in February 2017 were located in Durban and included Hesto Harnesses (Pty) Ltd. for monozukuri wire-harnesses to supply OEM products to Toyota, Toyota Boshoku South Africa (Pty) Ltd. for monozukuri car seats to supply OEM products to Toyota and Toyota South Africa Motors (Pty) Ltd. for monozukuri assembling Toyota cars. Judging from the visit and the general business environment in the country, the MNEs could treat investing capital in South Africa as confidently as investing in advanced countries, such as USA. South Africa has economic advantages which may outweigh downside risks. People born during the early 1990s when the country was reborn are now entering the workforce, and may be better qualified than their predecessors for corporate management. Moreover, MNEs have to employ excellent managers to carry out their corporate strategies and also respecting black empowerment and the demands of unions. Black Employee Empowerment (BEE) has been reformed to become Broad-Based Black Economic Empowerment (BBBEE). The private sector is not forced to follow BBBEE rules, but those that do are given a degree of priority when doing business with the government and related companies. There are generally three major nationwide labor unions; (1) NUMUSA (National Union of Metalworkers of South Africa), (2) LIMUSA (Liberated Metalworkers Union of South Africa), and (3) UASA (Associations of Trade Unions South Africa). The South African Guild of Actors (SAGA) formed a coalition with UASA because the latter has no specific representative in the industry. UASA has been in existence for more than 100 years. From the marketing perspective, the fact that SADC is spread across 15 countries means that it is difficult for it to operate as one market. As such, MNEs may wish to expand their businesses into neighboring Prospective Global Markets 155 countries, such as Botswana, Lesotho, Mozambique, Namibia, Swaziland or Zimbabwe. South African highways are kept in good condition. On the other hand, the ANC has been damaged by the Zuma presidency: democracy was the weakest it had been in the last 20 years. Now that Zuma’s exit and Ramaphosa’s assumption happened in February 2018, people expects to see a positive change in the country.

References and Notes England, Andrew (2015) ‘Zuma uses muscle to quell rising disquiet at autocratic tendencies,’ Financial Times, 17 February 2015. Financial Times (2015) ‘Nigeria military moves to retake territory from Boko Haram,’ 16 February 2015. Financial Times (2015) ‘Nigeria eyes more budget cuts as oil price slides,’ 19 February 2015. Financial Times (2015) ‘Nigeria unravelled,’ 14–15 February 2015. Ghemawat, P. and Altman, S. (2016) ‘Emerging economies: difference and distances,’ AIB Insights, Vo. 16, No. 4, p. 7, 2016 Academy of International Business. Lippokarawaci, see the homepage at https://www.lippokarawaci.co. id/(searched in July 2017) and the following.

The top 10 zaibatsu in Indonesia by sales in 2014 were:

No. 1: Astra International, US$16.4 billion. No. 2: Salim Group, US$13.7 billion. No. 3: Sinar Mas Group, US$9.8 billion. No. 4: Wilmar International, US$8.0 billion. No. 5: Djarum Group, US$7.8 billion. No. 6: Philips Morris International, US$6.2 billion. No. 7: Lippo Group, US$5.5 billion. No. 8: Gudang Garam, US$4.5 billion. No. 9: Royal Golden Eagle, US$4.4 billion. No.10: Bakrie Group, US$4.2 billion.

Meredith, M., (2006) The State of Africa-A History of Fifty Years of Independence, Free Press, pp. 1–2. 156 K. Yamazaki

The Standard (2017) ‘The Standard,’ Kenyan newspaper, 27 June 2017, stated that Uhuru Kenyatta will set the following challenges for the next five years: (1) Create 6.5 million jobs, (2) Make maternity services free, (3) Increase subsidies to provide fertilizers sufficiently by 1500Ksh, (4) Construct 500,000 houses for low-income earners, and (5) Construct 57 large-scale dams. 6

Golden Rules in Global Corporate Strategy

Source of Japanese Monozukuri Strategy

Japan’s remarkable economic progress was in part underpinned by the rapid expansion of its export sector, especially between 1950 to 1970. The history was closely related to an exchange rate system that worked as follows. In 1949, a fixed exchange rate system began working at a rate of JY360 per US dollar. In August 1971, a floating exchange rate system was introduced. However, in December 1971 the system returned to a fixed exchange rate at JY208 per US dollar in order to prevent sudden yen appreciation. Although international trade and investment proceeded smoothly under the fixed system, in February 1973 the system was moved back again to a floating rate, and has continued like this ever since. In the two decades up to 1993, owing to inexpensive labor costs and a favorable exchange rate in Japan, exports strengthened the balance of payments and GDP. Consequently, corporations reinvested profits in equipment. From 1971 to 1990, although yen appreciation took place and labor costs and inflation increased, the export surplus continued to grow by through greater investment in equipment by Japanese MNEs compared with their counterparts in other advanced countries. During this time,

© The Author(s) 2019 157 K. Yamazaki, Japanese Global Strategy, https://doi.org/10.1057/978-1-137-49738-3_6 158 K. Yamazaki the monozukuri system, which did not seem to have been strategically constructed inside Japanese MNEs, capitalized on the appreciating yen and invested FDI aggressively. In 1991 to 2000, as the competition increased, Japanese corporations were often defeated on price in international tenders. In 2001 to 2011, responding to customer requirements for ‘higher quality by lower price’, Japanese MNEs created the monozukuri strategy. The strategy came from the past monozukuri experiences in Japan and overseas factories. Headquarters collected all monozukuri data from plants across the world to integrate them into an in-depth analysis, and to decide the optimum solution to find how much volume and what kind of products to manufacture. In the process of considering customer requirements, MNEs would sometimes put more Japanese expatriates into foreign factories than usual. As such, monozukuri strategy originated from the shop floors of plants with takuminowaza, or sophisticated and refined techniques, and evolved from the system in the plant into the integrated strategy through marketing processes. In this process of evolution, Japanese MNEs confronted the competition squarely. The MNEs constructed monozukuri strategy based on 13 characteristics of production systems, as Dr. Fujimoto mentioned in the first chapter.

Role of Hybrid Theory and Japanese Global Operations

In Chap. 3 the four-perspective evaluation was revised for completion by 23 items and became a perfect theory that three sides are of equivalence in principle. Furthermore, sales was added to make 24 items altogether. These trials were conducted not only to seek out a perfect theory, but to make a practicable tool for analyzing monozukuri strategy. The list in Table 3.2 which shows the degree of application influenced by the environment across 23 items could help general manager at local plants to improve their operations. Table 6.1 and Fig. 6.1 show the application scores according to the hybrid theory of the subsidiary companies in nine cases described in Chap. 4. They are compared with other companies’ subsidiaries located Golden Rules in Global Corporate Strategy 159

Table 6.1 Comparison between case companies and external subsidiaries Average Asia & Africa (n=9) (n=78) 1. Job classification 3.9 4.2 2. Job rotation 3.9 2.9 3. Education and training 3.8 3.4 4. Wage system 3.6 3.1 5. Promotion 3.9 3.2 6. First-line supervisor 3.8 3.2 7. Production Equipment 4.5 3.8 8. Maintenance 3.8 3.0 9. Quality control 4.3 3.2 10. Operations Management 4.1 3.2 11. Local content 3.9 3.3 12. Suppliers 4.0 3.5 13. Procurement method 4.0 2.7 14. Small group activities 3.6 2.7 15. Information sharing 4.0 3.3 16. Sense of unity 4.0 3.4 17. Hiring policy 3.9 3.1 18. Job security 3.9 3.1 19. Labor unions 3.9 3.3 20. Grievance procedures 4.0 3.0 21. Ratio of Japanese expatriates 1.1 1.7 22. Delegation of authority 3.8 3.1 23. Management position of local 3.4 3.2 executives Average of 23 items 3.7 3.1 24. Sales & marketing department 3.7 in Asia excluding South Korea, Taiwan and Africa. The data are provided by JMNESG. The management style in the first nine companies is more likely to have applied systems than the other 78 companies across the 23 items except in ‘job classification’ and ‘ratio of Japanese expatriates’. Job classification is one of the most important elements in Japanese monozukuri system, and it is not in the ‘none’ item as mentioned in Table 3.2 ‘Degree analyzed by environment for 23 items’. In the system, two to three job classes are applied in general. This is closely related to job rotation. The ratio of Japanese expatriates is an ‘influenced’ item because some local governments enforce a limitation rule on the number of expatriates. 160 K. Yamazaki

1. Job classification Average of 23 items 2. Job rotation 5.0 23. Management position of local 4.5 3. Education and training 22. Delegation of authority 4.0 4. Wage system 3.5 21. Ratio of Japanese expatriates 3.0 5. Promotion 2.5 20. Grievance Procedures 2.0 6. Firstline supervisor 1.5 19. Labor unions 1.0 7. Production Equipment

18. Job security 8. Maintenance

17. Hiring policy 9. Quality control

16. Sense of unity 10. Operations Management 15. Information sharing 11. Local content 14. Small group activities 12. Suppliers 13. Procurement method

Average (n=9) Asia & Africa (n=78)

Fig. 6.1 Comparison between case companies and external subsidiaries

However, the nine companies execute this approach to by a lower ratio than others, not because of local regulations but due to looking for greater cost competitiveness in monozukuri strategy. Generally speaking, the cost of Japanese expatriates is more than twice as much as that of the local people. The application score of the 24th item, ‘sales and marketing department,’ is 3.7, the same as the average of the 23 items. The basic idea in Japanese management is the close integration of manufacturing and sales, i.e. the closer the sales department is to production the better. As time passes, this item shall record a lower application score because MNEs adapt their marketing to the local environment. All in all, the nine companies have higher application scores than ones in the other 78 companies. This may be because of monozukuri strategy requirements. As the radar figure of the 78 companies in Fig. 6.1 is very similar to the one for the nine companies (except for two items), the reality of two items’ scores in the nine companies might, to a certain extent, be called ‘the company executed by monozukuri strategy’. Golden Rules in Global Corporate Strategy 161

Table 6.2 Comparison of nine companies with others in four-perspective evaluation Nine case companies Asia & Africa Difference between (n=9) (n=78) the two Human- 3.6 3.2 0.4 Methods Human-Results 2.8 2.5 0.3 Material- 4.0 2.9 1.1 Methods Material- 4.1 3.5 0.6 Results

Human-Methods

Material-Results Human-Results

Material-Methods

Nine case companies (n=9) Asia & Africa (n=78)

Fig. 6.2 Comparison of case companies with others in four-perspective evaluation

A four-perspective evaluation can be used to understand how deeply the Japanese system has been adopted locally. The following Table 6.2 and Fig. 6.2 shows how the Japanese MNEs had been doing business by monozukuri strategy. Customer requirements of ‘higher quality by lower price’ may be considered a contradiction, but they would try to carry out ‘human-factor-related results’ (called ‘human-results’) items to be less 162 K. Yamazaki application scores that means ‘human localization’ as possible. The two quadrants Material-Method and Material-Result also play an important role of realization of lower price requests by their customers, because the less application score, the lower price possibly being supplied. MNEs seem to sacrifice their costs for the higher quality. As a result, the application scores of two quadrants are higher than other two human-related quadrants. As companies become more adapted and the local economy improves, they could carry out these operations at lower application scores. In Fig. 6.2, the two groups are fairly similar, although the scores of two items between the two groups are significantly different. In relation to items 11 to 13, keiretsu dealings are a piggy-back relationship that companies such as Toyota invested in in order to secure loyalty and to procure parts and services immediately. Some of the companies piggy-backed on the firms they produced parts for as the companies began operations overseas, as did Toyota and Honda in the 1970s. This piggy-back behavior is significant amongst Japanese smaller businesses. A single-source procurement system ceased to be effective in Japan after the Great Eastern Japan Earthquake in 2011. A certain automotive assembly manufacturing company purchased some parts and material from the single supplier in keiretsu before the Earthquake. Learning from the production-suspended experience for a long period of time, the company was forced to adopt multiple sources of purchasing. The application scores, 3.9, 4.0 and 4.0 shown in items 11 to 13 indicate that, when operating overseas, the nine companies try to import parts and materials in order to maintains high standards of quality. They are trying to purchase parts and material locally regardless of the keiretsu group if the parts are available and their quality meet requirements. How the nine case companies overseas behaved when it came to supplier relationships was almost the same as their parents in Japan.

Japanese Global Marketing and Strategy

In Chap. 5, 14 countries were identified as emerging markets; they are part of BRICS, VISTAS, CIVET and VIP. In addition, Kenya, Nigeria and South Africa were studied as the outstanding prospective markets in Golden Rules in Global Corporate Strategy 163

Africa. There are also the Next Eleven (N-11).: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam, identified by Goldman Sachs economist Jim O’Neill in a research paper as having a high potential of joining, along with the BRICS, the world’s largest economies in the twenty-first century. O’Neil chose these countries in late 2005 as they all then had promising outlooks in terms of investment and future growth. The criteria that were used including macroeconomic stability, political maturity, open- ness of trade and investment policies, and the quality of education. At the end of 2011, the four most prominent countries in the N-11, Mexico, Indonesia, Nigeria, and Turkey, commonly referred to as MINT, made up 73% of all N-11 GDP. Compared with a BRICS GDP of US$13.5 trillion, MINT GDP is just US$3.9 trillion.

Table 6.3 Comparison list for three Asian countries Sri Indonesia Lanka Vietnam GDP per capita 2016 *1 3606 4007 2170 GNI per capita, PPP (Current International $) *1 10,700 11,500 5720 Monthly Wage of general laborer in the factory 255 141 193 (US$) *2 in the case of engineer 413 385 348 in the case of middle manager 407 328 469 in the case of non-manufacturing staff 1116 853 1017 Foreign Direct Investment Net (Million $, 2013) 23,344 916 8900 *3 Japanese Global Investment (company, 2015) *4 1163 24 889 Japanese Global Investment (company, 1.71 1.26 3.11 2006–15% increment)*4 Population in general (million) *3 249.9 20.5 90.0 Population Density (people per sq. km) *3 138 327 289 Urban population growth (2012–13% growth) 2.7 0.8 3.1 *3 Population living in Japan *5 42,850 15,193 180,174 Sources: *1 Business Monitor International Ltd. (BMI) 2016 *2 JETRO Oct/2016 *3 World Bank Group, World Development Indicators 2015 *4 Toyokeizai Overseas Bulletin 2016 *5 Ministry of Foreign Affair in Japan, Dec/2016 164 K. Yamazaki

Table 6.4 Comparison of three African countries South Kenya Nigeria Africa. GDP per capita 2016 *1 1449 1843 5405 GNI per capita, PPP (Current International $) 3076 5810 12,878 *1 Monthly Wage of general laborer in the 209~885 above 957 factory *2 92 In the case of engineer 459~1756 2928 2921 In the case of middle manager 1032~6754 4832 4370 In the case of non-manufacturing staff 287~933 above 803 92 Foreign Direct Investment Net (Million $, 514 5609 8118 2013) *3 Japanese Global Investment (company, 2015) 10 15 77 *4 Japanese Global Investment 10.0 1.07 1.64 (company, 2006–15% increment)*4 Population in general (million) *3 44.4 173.6 53.2 Population Density (people per sq. km) *3 78 191 4 Urban population growth (2012–13% 4.4 4.7 2.4 growth) *3 Population living in Japan *5 517 2798 788 Sources: the same as Table 6.3 *1. Business Monitor International Ltd. (BMI) 2016 *2 JETRO Data Library Oct/2016 *3 World Bank Group, World Development Indicators 2015 *4 Toyokeizai Overseas Buletin 2016 *5 Ministry of Foreign Affair in Japan, Dec/2016

Of the N-11, Bangladesh, Iran, Mexico, Nigeria, Pakistan and South Korea could be added to the 14 countries identified in Chap. 4. Furthermore, Kenya can be regarded as a prospective country in view of its high quality education. In conclusion, 21 countries seem to be emerging countries that MNEs are watching. If the 21 countries are classified by region, Asia has ten countries, Africa four, and others seven. The following Tables 6.3 and 6.4 summarize some economic data. Let us look at three Asian countries. In Sri Lanka, a high-quality workforce is available across all levels of jobs at a lower cost among the three countries. In terms of FDI, Sri Lanka is suitable for small- and mid-size manufacturing requiring high-end technology. In Indonesia, the amount of FDI is the highest partly because of the large and prospective market. This Golden Rules in Global Corporate Strategy 165

FDI comes not only from China and Japan, but also USA and EU. In Vietnam, FDI is suitable across all industries. That is why in terms of number of invested companies, Vietnam had the highest rate of increment between 2006 and 2015, increasing by 3.11 times. The country was the highest in terms of population living in Japan. Half of the people return to Vietnam after two to four years of study or two to three years of work experience in Japan. One-quarter stay for life to help meet shortages in the Japanese labor force. Another quarter might proceed to other countries for study or work. As the urban growth rate is high in Indonesia and Vietnam, traffic congestion has become worse and the electricity supply has not kept up with demand, especially in big cities. As for FDI, MNEs must consider the choice of location carefully. Second, let us look at three African countries. Although GDP per capita in Kenya and Nigeria are far behind the three Asian countries, the monthly wage of engineers and middle managers was relatively high. In general, the more the country is industrialized, the more trained engineers and managers are supplied in the society among developing countries. Consequently, the salary shall go down to the balance between supply and demand. This was because of industrialization’s backwardness compared with Asian countries. There was a dependency on oil in Nigeria and on agriculture in Kenya. Urban population growth rates in Kenya and Nigeria were much higher than ones in other countries, so that they will have the risks of operational deficiency functionally unless the infrastructure catch up with the growth. In the case of Nigerians living in Japan, most of them were engineers who came to study Japanese production systems in universities or companies. As for Japanese global investment in terms of number of companies, all three countries have fairly small amounts of Japanese FDI. The reason is perhaps not just the geographical distance between Africa and Japan, but also the MNE’s priori- tization of FDI in monozukuri strategies. There are large, prospective markets like India and Indonesia that are closer to Africa in location compared to Japan. It is a fact that countries in Africa emerged on to the world market in the 2000s, and most Japanese MNEs have begun to acknowledge that Africa has been big market since 2009, and have since been watching their speedy development carefully. However, Africa with the exception of the northern countries has sometimes been a last choice for MNEs. Japanese MNEs are no exception. According to the IMF, in 166 K. Yamazaki

Table 6.5 How Japanese global companies view the African market in relation to their global strategies Kind of Strategy Status Quo Company Name (1) Monozukuri a company which has already YKK, Denso, Toyota Strategy done business in the Africa Motor, Nissan Motor, as one of the global markets Honda Motor, Panasonic, Kansai Paint, Yazaki, Sumitomo Electric, etc. (2) Slow and a company which has already Komatsu, Yamaha Motor, Steady Strategy had a business experience Yokogawa Electric, Isuzu, and will intend to expand Hitachi Construction their businesses step by step Machinery, etc. (3) a company which has Mabuchi Motor, Furukawa Omnidirectional considered African markets Electric, etc. Strategy omnidirectionally (4) Wait-and-See a company which has no Hamamatsu Photonics, Strategy intention to go into African Kanefusa, etc. market as one of the global markets

2015, inbound FDI showed East Asia plus India accounted for 27.7%, USA plus Canada 24.4%, EU 24.9%, Africa 3.1% and the rest of the world 19.9%. Global FDI in 2015 amounted to US$1762 billion. Table 6.5 shows a strategic analysis of the African market for Japanese MNEs. The companies in category (1) are operated mostly by locals with Japanese expatriates playing a supporting role to senior management especially the president. Thus, the higher the quality, the more competitive the product. The category (2) companies like Komatsu and Hitachi Construction Machinery watch for increased demand in Africa as their plant and equipment costs are high. The category (3) companies will await customer’s FDI in Africa and/or look for alliances with companies in Europe and USA. The companies in category (4) will be able to export their products from the overseas factories because of their high quality.

Evolution of Japanese Global Strategy

This book looks at Japanese global strategy, focuses on management and marketing across the globe. However, the text does not fully consider political and social risks. Yet when we come to think of how Japanese Golden Rules in Global Corporate Strategy 167 global strategy evolves over the long term, say 20 years, political and social aspects are usually taken into account by MNEs. The following figure shows the simplified concepts of management. As to (a), people confront various types of environmental climate and live with their own historical and traditional background. Global warming and yellow sand wind are problems for international society. Bangladesh had a land area of 134,000km2 in 2008, but the country may eventually lose 16% of its land due to a rise in sea levels if global emission goals are not met. This is a prospective downside risk for FDI. Regarding (b), it is rather complicated because the behavior of presidents and prime ministers are sometimes closely related to global power balances especially when it comes to economic and military power. For example, reso- lution of a land territory issue between two countries can take some time, possibly a century or longer. No MNEs would invest in such a problem- atic geographic area. Furthermore, no one can expect psychologically unbalanced leaders to take sensible actions. Academic analysis of political risk suggests that nearly 50% of firms avoid FDI because of political risk (Giambona et al. 2017). The Toyota Motor Company periodically holds an informal advisory board meeting consisting of leading economists, former political leaders, futurists and sociologists from many parts of the world. The company is said to spend millions of dollars on this activity. It is usually held with the utmost secrecy, and not open to the public. Toyota will then make a projection about the likely state of the world society 30 years hence, and make backcasting for 20 years and 10 years. After the process, they will make a long-term plan. The 20-year future projection is shared with their suppliers in order to set common targets. The monozukuri strategy is related in Fig. 6.3 (c). The activities of Kaizen and 5S are the key management factors at Toyota and in Japan as well, and this will continue into the future. These approaches assist in the operation of secondary industries to be efficient and speedy. They also fit the national characteristics of the Japanese people. Kobe Steel Co. Ltd. announced that it introduced a maternity uniform for female employees during pregnancy. About ten women per annum are expected to use this uniform (The Nikkei 2016). This measure is one of thoughtful management. As artificial intelligence evolved rapidly, SoftBank’s robot called ‘Pepper’ was in the market. It is the world’s first personal robot and 168 K. Yamazaki

(a) Elements of international society (b)Elements of International politics

Human Power

Climate Culture Time Psychology

Human

Money Technology

Fig. 6.3 Simplified concepts of three fields in terms of elements. (a) Elements of International Society, (b) Elements of International Politics, (c) Elements of International Economics and Management the one that can read human emotions (Softbank 2017). The company’s strategy is to sell Pepper individually to improve Quality of Life (QOL). As such, the company’s target for sales in the future will be 100 million units, similar to Japan’s population. The monozukuri strategy is changed to kikubari and/or omotenashi strategy when moving from considering secondary industry to a tertiary industry. Ide Sound Institute and Soniphy LLC made ‘omotenashi’ hospitality through the use of sounds. The sounds makes people feel and experience hospitality, and will be used everywhere at Tokyo Olympic venues and sites in 2020 (Soniphy 2017). It is said that if the Japanese population continued decreasing at its current rate, the population in 2053 will be less than 100 million compared with 127 million at present. One of the newspaper commentators Golden Rules in Global Corporate Strategy 169 in Nikkei Inc. claims that ‘Look Switzerland and Swiss MNEs!’ is one of the future-oriented strategies in Japan. As we have seen, corporate culture is often based on a country’s culture. In Japan, this has been cultivated for a long time, especially following the Meiji Restoration in 1868. If the country’s culture changes subtly over the next, say, three decades due to greater diversity in Japanese society, it will impact corporate culture. If this occurs, MNEs should consider (a) and (c) in Fig. 6.3 with a human- robot interface based on Compact, Speedy and Thoughtfulness (CST). The consideration might be the best approach for Japanese global strategy in the next generation.

References and Notes Giambona, E., Graham, J. and Harvey, C. (2017) ‘The Management of political risk’, Journal of International Business Studies 48, pp. 523–533, Palgrave Macmillan. The Nikkei (2016), 8 September 2016. Softbank (2017), see http://www.softbank.jp/en/robot/ Soniphy (2017), see http;//soniphy.com/breathe/ Soniphy LLC has developed musical solutions for medicinal uses, including for cancer patients. Bibliography

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A ASEAN countries, 59, 60, 75, 81, Abegglen, James C., 20–22 105, 124, 133 Abo, Tetsuo, 1, 33, 34, 36–39 Asmo Co., Ltd., 56 Adaptation, 1, 33, 34, 37, 39 Associations of Trade Unions South Affected, 25, 28, 42, 43, 84, 117, Africa (UASA), 154 125, 151 African Continent, 12, 136–138 African National Congress (ANC), B 152, 155 Backcasting, 63, 167 Americas (The Americas), 59, 101 Batam, 117, 119 Application, 20, 33, 34, 35, 37, 39, Beijing Hamamatsu Photon 61, 70, 72, 73, 77, 83, 90, 99, Techniques Inc. (BHP), 74, 75 158 Belgium, 18 scores, 2, 39, 40, 42, 44–45, 82, Bloemfontein, 150 93, 99, 107, 111, 112, 114, Blue-collar, 21–23 120, 158, 160, 162 Boko Haram, 147, 148 Arabe, 39 Bosch, 40 Argentina, 3, 5, 14, 40, 41, 123, Botswana, 155 124 Brazil, 3, 14, 40, 57, 66, 73, 76, 80, Arima, Koji, 56, 58, 59 102, 123

Brazil, Russia, India, China and Criterion/criteria, 2, 34, 35, 39, 40, South Africa (BRICS), 3, 5, 42, 45, 62, 163 28, 78, 104, 123, 136, 162, Customers’ requirements, 41, 70, 163 158, 161 Bridge production, 58, 59 Bulgaria, 79 Buy German, 79 D Dantotsu (products), 58, 85, 86, 91 Debottlenecking, 107 C Demarcation, 26 Canada, 14, 18, 88, 105, 166 Deming, William Edwards, 19, 20 Cape Town, 150 Deming Prize, 20, 63, 84, 92, 115 Caterpillar Inc., 83, 87 Deming’s Fourteen Points, 20 China (the People’s Republic of DENSO Corporation (Denso), vi, 3, China), 3, 12, 13, 18, 37, 39, 55–62, 125, 130, 166 40, 57, 59, 66, 67, 70, 73–75, Densoism, 6 79, 82, 84, 85, 87–89, 91, Developing countries, 28, 37, 106, 93–96, 101, 103, 105, 117, 123–125, 133 118, 123, 124, 128–130, 132, Doi Moi reforms, 133 133, 135, 136, 149, 165 Dunning, John H., 25, 26 Colombia, 3, 5, 123 Colombia, Indonesia, Vietnam, Egypt, Turkey, and South E Africa (CIVET), 3, 5, 123, East African Economic Community 162 (EAC), 137, 142, 143 Colombo, 127, 128, 130 East Asia pattern, 37 Common goods, 123 Economic Community for West Commonwealth of Independent African Countries (ECOWAS), States (CIS), 87–89 137, 150 Commonwealth of Nations, 152 Economic Partnership Agreement Compact, speedy, and thoughtful (EPA), 125 (CST) management, 4 Education and training, 22, 43, 61, Completely knocked down (CKD), 159 142 Egalitarian way, 22 Conference of Non-Aligned Egypt, 3, 5, 14, 110–112, 123, 136, Countries (CNAC), 152 163 Corporate strategy, 1, 2, 9, 11, 41, Emerging countries, 4, 60, 164 55, 63–65, 84, 104, 154, Eruboshi certification, 68 157–169 ETEL S.A., 73 Index 179

European colonial histories, 37 Global business environment, 1, 4, European Union (EU), 111, 128, 17–30 133, 165, 166 ‘Global Business Strategic Initiatives’ Export Processing Zones (EPZ), 130 (GBSI), 15, 64, 66 Global strategy, v, vii, 4, 13, 42, 55–120, 166–169 F Goldman (The Goldman Sachs FDK Corporation, 128 Group, Inc.), 3, 5 First-line supervisor, 22, 43, 159 Great Eastern Japan Earthquake, 85, Five-point scale (5-point scale), 2, 34 162 Fixed exchange rate system, 19, 157 Gross domestic products (GDP), 12, Floating exchange rate system, 19, 157 82, 125, 133, 134, 136–139, Foreign direct investment (FDI), 144, 148, 150, 151, 157, 2–4, 18, 25–30, 33, 36–38, 163–165 83, 109, 123–125, 130, 135, Gross national income (GNI), 111, 136, 150, 158, 164–167 151, 163, 164 Foreign direct investors, 26 Group consciousness, 35, 39, 43 Four-perspective evaluation, 33, 35, 40–42, 112, 158, 161 Fourteen countries (14 countries), 3, H 123, 124, 162, 164 Hamamatsu Photonics K.K. France, 17, 18, 110, 111, 131 (Hamaphotonics), vi, 3, Fujimoto, Takahiro, 29, 30, 158 70–75, 166 Full-time union official, 24 Hamanakodenso Co., Ltd., 56 Furukawa Automotive Parts Harambee, 141, 142 (Vietnam) Inc., 67 Hayward, Mark, 62 Furukawa Automotive Systems Inc. Hexagonal strategy, 109 (FAS), 13, 67, 68 Hiruma, Akira, 71, 72 Furukawa Electric Co., Ltd. (FEC), Hitachi Construction Machinery, vi, 3, 9, 12, 13, 15, 17, 63–69, 166 125, 130, 166 Hokushin Industries Inc., 115 Furukawa G Plan 2020, 65 Home country, 34, 39 Host country, 34, 39, 42 Human development, 125 G Human Development Index (HDI), Germany, 17, 28, 40, 57, 68, 78, 79, 60, 140 110, 131, 139, 149 Hybrid theory, v, 2, 5, 28, 33–45, Giroud, Axele, 38 158–162 180 Index

I Job IBM Japan, 39 assignments, 27 Ide Sound Institute and Soniphy categories, 27 LLC, 168 classification, 22, 27, 37, 43, 92, In-company labor union, 22, 24 107, 159 India, 3, 12, 13, 57, 59, 60, 66, 67, Juhn, W., 40 73, 76, 79, 101, 105–107, 118, 123, 124, 129, 132, 133, 165, 166 K India Yamaha Motor Pvt. Ltd. Kaizen (proposal), 29, 41–45, 58, (IYM), 105–107 59, 68, 81, 99, 104, 137, 167 Indonesia (The Republic of Kanefusa Corporation (Kanefusa), vi, Indonesia), vi, 3, 5, 60, 61, 67, 18, 76–82, 125 80–82, 101, 106, 117–119, Kanefusa Indonesia (P.T. Kanefusa 123–127, 163–165 Indonesia), 76, 80, 82 Influenced, 17, 42, 43, 158, 159 Kawai, Norifumi, 38 Infrastructure (development), 9, Keiretsu, 35, 91, 162 63–66, 125, 148, 150 Kenya (The Republic of Kenya), vi, Intellectual skill, 23 3, 14, 66, 123, 136–143, 162, International Labor Organization 164, 165 (ILO), 24 Kikubari strategy, 127, 135, 168 International Monetary Fund Kimura, Takahide, 63–65 (IMF), 123, 125, 129, 136, Knowledge creator, 38, 39 165 Kobe Steel Co. Ltd., 167 Ishikawa, Kaoru, 20, 83 Koike, Kazuo, 22–24, 26 Italy, 17, 101 Komatsu Limited (Komatsu), vi, 3, 83–93, 154, 166 Komatsu Shantui Construction J Machinery Co. Ltd., 84, 91 Jakarta, 80, 125–127 Komatsu Way, 84 Japanese American companies, 2, 26, Korean War, 19 28 Kotte (Sri Jayewardenepura Kotte), Japanese FDI, 18, 26, 135, 165 127 Japanese global companies, 30, Kujawa, Duane, 26–28, 34 166 Japanese Multinational Enterprises Study Group (JMNESG), 1, 2, L 5, 33, 34, 39–41, 113 Labor relations, 20, 35, 37, 42, 43, Japanese-owned, 26, 27 112 Java Island, 125 Lagos, 143, 149, 150 Index 181

Lean production, 59 Multinational enterprises (MNEs), Leitz, 76 2–4, 25, 26, 30, 33, 37, 38, Lesotho, 111, 155 55–120, 123, 124, 128, 154, Lifetime commitment or 157, 158, 160–162, 164–167, employment system, 22 169 Lifetime employment philosophy, 26 Multi-skill worker, 22, 23, 29, 61, 74 Listed corporation, 135 Local context, 38 N Nairobi, 138–140, 142 M Namibia, 155 M&A, 11, 79 National Union of Metalworkers of Mabuchi, Takaichi, 95–98 South Africa (NUMSA), 154 Mabuchi Motor Co., Ltd. Nation’s income theory, 42 (Mabuchi), vi, 94–99, 130, Nenkoh, 24 166 Netherlands, 18, 59, 76, 79, 127 Mabuchi Motor Vietnam Ltd. New yen, 19 (VNM), 95, 98, 99 Next Eleven (N-11), 163, 164 Malaysia, 22, 67, 109, 119, 130 Nigeria (Federal Republic of Mandela, Nelson, 152 Nigeria), vi, 3, 14, 66, 104, Masai Mara, 139 123, 136, 137, 143–150, Meiji Restoration, 169 162–165 Mexico, Indonesia, Nigeria, and Nikkei Inc., 3, 5, 169 Turkey (MINT), 163 Nine case study companies, 2, 125, Mitsui & Co., 18, 19, 87, 104 130, 161, 162 Monozukuri, 1, 17–30, 33, 37, 55, Nishijima, Takashi, 114, 115 58, 61, 72, 76, 83, 84, 95, Non-Japanese foreign-owned, 26 102, 106, 116, 118, 154 Non-listed companies, 36, 108 data, 158 experiences, 158 management, 1 O practice, 55 Ohashi, Tetsuji, 85, 87–90 strategy, v, 25–30, 33, 40, 56, 95, Okaya Electric Industries Co., Ltd., 125–128, 130, 157–158 128 system, 58, 60, 158, 159 Omotenashi strategy, 168 theory, 33–36, 158 O’Neill, Jim, 163 Mozambique, 66, 155 On-the-job training (OJT), 22, 23, Multifunctional skills, 22 26, 27 182 Index

Orderly marketing arrangements Quality Assurance Headquarter (OMAs), 26 (QA-HQ), 115, 116 Organization for Economic Quality Control (QC) circle, 23, 81, Cooperation and Development 82 (OECD), 17 Organization of African Unity (OAU), 152 R Original Equipment Manufacturer Regional Head Quarters (RHQ), 59, (OEM), 56, 142, 149, 154 60, 109, 110, 117, 118 Otake, Makoto, 115, 118 Research and development (R&D), Outstanding markets, 4 12, 35, 57, 64, 65, 67, 70–72, 101 Rostow, W.W., 17 P Rotation, 22, 23, 26, 43, 70, 75, 159 Parent-subsidiary relation, 35, 37, Russia, 2, 3, 12, 14, 17, 40, 59, 80, 42–45 110, 123, 124, 129 Paris agreement, 148 Particularity and generality, 37 Philippines, 3, 67, 123, 132, 163 S Piggy-backed, 162 Sales organization, 44–45 Pretoria, 150 Saudi Arabia, 60, 66, 87, 88, 124 Principle of equivalence, 42 Secondary industry, 1, 29, 151, 167, Privatization (of state corporations), 168 138 Semi-knocked downed (SKD), 142 Privileged possession, 25 Seniority, 22–24, 26 Procurement, 35–37, 42, 43, 159, Shibata, Katsumi, 68 162 Shibata, Mitsuyoshi, 9, 63, 64 Production control, 35, 42, 43 Shinozuka, Hisashi, 87–89 Promotion, 12, 21, 22, 37, 43, 65, Shop-floor leader, 22 69, 73, 159 Small and medium-sized companies Prospective global markets, 123–155 (SMCs), 20, 21, 125 Sogohshosha, 18 South Africa (The Republic of South Q Africa), vi, 3, 5, 14, 37, 66, 73, Quad Strategy, 88 79, 90, 111, 123, 136, 144, Quality Assurance Department of 150–155 Consolidated Management South Asian Association for Regional Unit (CMU-QA), 116 Cooperation (SAARC), 129 Index 183

Southeast Asian countries, 25 Turkey, 3, 5, 14, 66, 87, 110, 123, Southern Africa Development 163 Community (SADC), 137, Twenty-three-item analysis (23-item 152, 154 analysis), 42, 112 Southern Products Company, 18 Sri Lanka (The Democratic Socialist Republic of Sri Lanka), vi, 3, U 5, 13, 66, 123, 124, 127–130, Unionization, 28 163, 164 Union of Japanese Scientists and Statistical quality control (SQC), 20 Engineers (JUSE), 19, 20 Strange, Roger, 38 United Kingdom (U.K.), 14, 17, Sub-Saharan countries, 79, 136, 137 18, 25, 26, 28, 37, 38, 104, Sumitomo Bank, 19 110, 111, 113, 114, 130, Sumitomo Corporation, 88 139 Sustainability Report, 9, 64 United Nations Development Swaziland, 110–112, 155 Program (UNDP), 123 Switzerland (Swiss), 18, 169 United States (USA), 2, 14, 17–19, 21–23, 25–28, 33–35, 37, 39, 41, 58–60, 63, 67, 73, T 79–81, 83, 86, 88, 90, 98, Takayanagi, Kenjiro, 72 103, 105, 109, 111, 116, Tanaka, Masako, 68 124, 128, 130, 131, 133, Tennoism, 8, 18 136, 137, 139, 140, 151, Tertiary industry, 25, 30, 126, 151, 154, 157, 165, 166 168 US Government’s African Growth Thailand, 3, 5, 22, 58, 59, 68, 89, and Opportunity Act (AGOA), 101–103, 123, 124, 133 140 Tokyo International Conference on African Development (TICAD), 137 V Tokyo Stock Exchange, 36, 70, 94, Vietnam (The Socialist Republic of 114 Vietnam), vi, 3, 5, 67, 68, 95, Total management system, 1, 7 98, 123, 124, 130–136, 165 Total Quality Control (TQC), 20 Vietnam, Indonesia, and Philippines Total Quality Management (TQM), (VIP), 3, 5, 123, 162 20, 84, 91 Vietnam, Indonesia, South Africa, Toyota Motors Co. (Toyota Motor Turkey, Argentina, Sri Lanka Corporation), 56, 58, 67, 166, (VISTAS), 3, 5, 60, 123, 162 167 Visualization of symptoms, 59 184 Index

W Yamanouchi, Yutaka, 60 Wage system, 22–24, 37, 43, 119, 159 Yamazaki, Katsuo, vi, 9, 13, 36, Walton, Mary, 20 39–41, 63, 77, 95, 110, 115 Watanabe, Masato, 76–79, 102, 104, Yanagi, Hiroyuki, 102, 103 105 Yen, 19, 95, 132, 157, 158 Wharton School, 3, 5 YKK AP, 109 Wilkins, Mira, 18, 19, 34 YKK Corporation (YKK), vi, Work organization and 108–114, 125, 130 administration, 20, 35, 42, 43 Yokogawa Electric Company World Bank, 111, 123, 124, 139, (Yokogawa), vi, 114–120, 140, 144, 151, 163, 164 125 World Trade Organization (WTO), Yokogawa Engineering Asia Pte 131, 133 Ltd. (YEA), 114, 115, 117, World War I, 17, 18 118 World War II, v, 1, 7, 19–22, 124, Yokohama Specie Bank, 19 128 Yoshida, Tadao, 108, 109

Y Z Yamaha Motor Co., Ltd. (Yamaha), Zero loan management, 78 vi, 9, 100–107, 125, 130 Zimbabwe, 155