MANABINK

Special Interview with Roland Berger on Japanese Economy

Q: What’s your take on the quantitative easing by the Bank of Japan and resulting depreciation of Japanese yen?

I think it will help Japanese industry and Japanese business, especially Japanese exports. But it helps only for the short-term, because the real issue in the end becomes “competitiveness.” So I hope that easing will not prevent Japanese corporations to further increase their competitiveness and address weaknesses.

Of course from the political standpoint it may be good for Japan for a while that BOJ’s monetary policy brings down the exchange rate. But if it leads to worldwide devaluation competition, then the world may run into a very difficult situation, like what we saw during the later years of the 20th century, where currencies started to devaluate one after the other. So if tomorrow the US attempts to devalue the dollar for example, then so will the Euro. One must be cautious politically over these kinds of measures.

Q: Is there anything Japanese companies can learn from successful European global companies?

The real global European corporations such as Volkswagen, Siemens, BASF, Renault, German Bank and so on are more dependent on global markets. They are doing very well, because globally the economy is growing particularly in the emerging markets. They have a perfect portfolio for those markets. And these companies are, contrary to the average Japanese companies, much more globalized and much more focused on a few business and not so diversified. They are globally selling big quantities of their product. So their cost position is better. They are realizing the economy of scale.

Also, these companies are highly productive. There are lots of investments in automation such as process improvement and process automation. And these combinations have made these companies productive and very competitive internationally. In addition, labor costs are very contained. Plus they are innovative, investing a lot in R&D, and they offer a unique combination of hardware and services which make them competitive in a specific way.

Because they are focused, they are selling more of one unit while companies like Hitachi has to sell nuclear power plants, TV sets, construction equipment and so on. So Hitachi might achieve big sales overall, but they have fewer sales for particular products. So the focus is very important to reach quantity of smaller range of products that bring the economy of scale. Then of course it is easier rationalizing processes and you can better automate.

Q:Japanese companies try to promote the “selections and concentrations,” but this method doesn’t seem to work. Why do you think Japanese top management could not focus on the lesser business?

One of the reasons is because Japanese companies are still focusing more on the domestic market, making them less globalized so they export less than they should. The second reason I think is cultural. Because many Japanese companies are afraid to focus on a certain business and give up another business and lay off workers — they don’t want this. So rather they keep too many businesses together. Even if you are growing and you still focus business, you employ the same number of workers in one business instead of three or four in different businesses.

This might be the third reason, because the companies are always trying to be similar to each other. So Sony doesn’t focus, Hitachi doesn’t focus, Toshiba doesn’t focus and Panasonic doesn’t focus. There are certain patterns of behavior. Of course something is happening in Japan, for instance the companies in this sector are concentrating their activities or putting together R&D activities so something is happening, at least as far as focus is concerned.

Need for Consolidation of Companies

Another weakness of or another specific characteristic of the Japanese corporation is the low level of concentration, which means industry consolidation is not very advanced. For example, in the automotive industry you still have five major manufacturers. No Western country has that many. The same is true of many other industries. I don’t know why Hitachi and Komatsu are still making same construction equipment and compete with each other. It would make much more sense to consolidate these industries. It would lead to much stronger focus, international price competitiveness and also innovation in that area. And they would be able to make a greater marketing impact because they would have a bigger marketing budget.

Low-productivities of White-color Workers

One other area that sometimes makes strong global companies more productive than their Japanese counterparts is that Japanese corporations may be excellent as far as their blue-color productivity or factories are concerned. They still have more attractive products. But they have lots of white-collar people adding to their overheads, which results in lower levels of productivity and streamlining processes; lower levels of standardization of process; and lower levels of automation and IT utilization.

Q: Looking at white-collar workers in Japan, in the past, middle management were responsible for making decisions and gave instructions to their subordinates to promote their business activities. Top management also gave the approval to decisions made at the middle level. But recently some observers are saying that we are now in an era when even the top management has to involve themselves in such decision-making. Is this kind of micro-management unique to Japan?

I think it’s becoming something of a worldwide trend. And it’s proved to be efficient and effective in the European business environment and the US. I think it is also effective in Japan. The tendency is pretty logical and of course it is taught by business schools attended by Japanese executives so they can understand how the international competition is working.

Leave a Reply

Your email address will not be published. Required fields are marked *