Indepth Analysis of the Japanese Macro Environment

The sample essay on Japanese Keiretsu deals with a framework of research-based facts, approaches and arguments concerning this theme. To see the essay’s introduction, body paragraphs and conclusion, read on.

1. Introduction

The aim of this report is to provide an in-depth analysis on Japan’s macro environment and to assist a company, such as Experian, in evaluating whether or not to enter the Japanese market.

When exploring the possibility of entering a foreign market, country risk analysis is usually carried out.

This “examines the chances of non-market events (political, social, and economic) causing financial, strategic, or personnel losses to a firm” following investment. (Rugman, A. and Collinson, S. 2006, p.373) One of the common tools used in evaluating a particular environment is the PESTLE framework. This incorporates political, economic, social, technological, legal and environmental factors to assess the environment. One can understand that these factors can be inter-linked, for example, the political and economic issues, however, it is a convenient tool for analysts.

Japanese Culture Essay Sample

I believe that the most important factors for a firm to consider when entering Japan in particular are the social and cultural elements. As a result, I will investigate these factors further in this report, for example, by looking at the works of Geert Hofstede and Fons Trompenaars. I will also examine the role of keiretsu in Japan and the possible impacts that they could have on foreign investors.

2. Does the Japanese culture matter?

This is a question that many investors ask themselves when considering entering a new market and the most common reply is that it is probably the greatest obstacle to success.

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However, a difficulty arises in defining the term ‘culture’. “It can be, perhaps, be best understood as the shared beliefs of a group.” (Dawes, B. 1995, p.58) When analyzing a new environment, firms need to identify the cultures in the chosen market, as such knowledge is necessary for success.

Culture analysts have developed models to characterise cultures such as Hofsted and Trompenaars. Hofstede suggested four dimensions of culture (Appendix 1). From his study, Hofstede found the Japanese culture to be heavily reliant on group affiliations and loyalty, and described it as collective. Javidan, M. and House, R. J. (2001, p.292) explain that an important reason why this is, is due to its harsh environment and being unsupportive for the survival of its population. For example, it takes at least 20 people to successfully maintain a rice paddy. This is the opposite of what is generally found in the UK, where managers tend to encourage entrepreneurship and individual responsibility. As a result, prospective managers in Japan need to be aware of this cooperative issue. Also, due to strong uncertainty avoidance, members of Japanese culture prefer rules and structure. Furthermore, the Japanese culture is one that is masculine. For example, they value competitiveness and are assertive than their counterparts. These are all factors that managers need to consider when entering Japan.

Building on Hofstede’s work, Trompenaars focussed more on the implications on management from cultural differences. His research concluded with seven dimensions of culture (Appendix 2) and for each one, he positioned each country relative to each other. From this study, he found the same conclusion as that from Hofstede, in that Japan is a collective society. In addition, it is a neutral culture in that they show less emotion in the workplace compared to others. Furthermore, the relationships developed in the workplace are diffused and extended into the whole society. Consequently, this provides an insight into possible conflicts that prospective managers may face. As a result, a possible solution could be to promote social events outside the workplace, as well as encouraging team-building exercises.

As with any study, the models of Hofstede and Trompenaars can be criticised. Generalisations can be difficult to make due to the nature of national cultures; there are various definitions and they can be interpreted differently by various groups. “Trompenaars, for example, have been criticised for failing to match their model satisfactorily to the actual responses of managers and basing some of their conclusions on differing, more subjective assumptions and observations.” (Dawes, B. 1995, p.61) Even though such models have limitations, this model provides a framework and a foundation to research and develop further.

The Japanese business environment is generally viewed as very traditional due to the very rigid labour laws and the general expectation of lifetime employment with the same employer. Consequently, in a survey of US companies with operations in Japan, “about 62 per cent said difficulties in recruiting skilled staff were a factor.” (Leadbeater, C. 1991, p.6) This system includes on-the-job training whereby employees are trained within the firm and partake in a long term programme. Also, with the prospect of rotations within the firm, employees have the opportunity to develop their professional abilities. Consequently, prospective investors should consider the costs of such training schemes that may need implementing.

In addition, the tradition view is supported strongly due to the fact that Japan has an aging population. The demographics can clearly be seen below:

Source: Anon. (2007). Business in Japan: Still work to be done. The Economist, 385(8557), p.13.

Japan’s population “is greying faster than that of any other big economy, so the old will become an increasing burden on workers. Today, one-fifth of Japanese are over 65; by 2015, the proportion will grow to one in four, or about 30m.” (Anon. 2008a, p.31) Consequently, the problem of finding a young workforce may prove operating in Japan to be difficult.

Dr William Ouchi has developed Theory Z based on the Japanese management style. This focuses on the welfare of the employees, on and off the job, as well as providing a job for life which increases loyalty. Thus employees’ morale and productivity increases. Further characteristics include collective responsibility and decision making, as well as employee evaluation on a longer term perspective. Subsequently, to control a successful workforce, these characteristics should be implemented.

Being the leader of a Pacific trading bloc, more countries are trying to emulate Japan’s success by emulating their practices. Consequently, learning the Japanese approach should be more important for foreign firms. Nevertheless, in reality this is not the case as Czinkota (1998, p.22) found “in 1991, only 1,180 U.S. students attended school in Japan, whereas more than 30,000 Japanese students came to the United States. Unless we learn to observe and absorb Japanese knowledge and know-how to a greater extent, we will continue to be surprised by “new” developments because we weren’t paying attention.” An alternative solution for investors could be to encourage and provide incentives for Japanese students who study abroad to return to Japan and work for their firm.

3. A changing nation?

Nevertheless, there are positive signs in the Japanese market as the role of lifetime employment has been questioned by many recently. Could this be a stage of transition?

Source: Anon. (2008a). Sayonara, salaryman. The Economist, 386(8561), p.61.

The above graph shows that since the last thirty years, many firms have hired new staff on part-time or contract basis compared to permanent workers. The primary reason for this is that young professionals do not want to revolve their life around their work. Consequently, this shift in employment patterns has reduced inequality by allowing more women into the workforce and pensioners to rejoin. This decline in traditional characteristics and the opening of society is positive news to prospective investors in that it enables more flexible employment practices.

4. The affect of keiretsu

“In the very short time since 1989 a Japanese word migrated to America, jumped onto the cover of Business Week, made a dramatic debut before the U.S. Congress, did a variety of television appearances, and was quickly “naturalized” into the English language. The term keiretsu may lack the cultural associations of kimono and geisha and the upscale image of sushi, but it has accomplished something that these other Japanese imports have not: it has joined America’s business lexicon.”

(Miyashita, K. and Russell, D. W. 1994, p.ix)

Keiretsu are a group of individual firms that can be viewed together due to their affiliation with one another and their networks. These can be of either horizontal or vertical hierarchy and involve the transfer of information, finance or personnel. They “stand accused of restricting the opportunities of outsiders wishing to sell to keiretsu members” and “dominate certain markets, and have been labelled as one of the most important obstacles to foreign companies trying to penetrate the Japanese market.” (Czinkota, M. R. and Kotabe, M. 1998, p.11) Consequently, for a firm such as Experian, to enter the Japanese market would be tough and a possible alternative would be to merge with a member of such a keiretsu. Nevertheless, this alternative would not be simple as the target firm would already have strong affiliations.

Furthermore, Czinkota, M. R. and Kotabe, M. (1998) have carried out a study to find out what researchers, business executives and policy makers from the US, Europe and Japan believe are the major barriers for foreign firms when entering Japan. The results identified 16 areas of concern and factor analysis showed the four major barriers to be government trade barriers, bureaucratic practices, the culture barrier (including keiretsu) and the very high level of demand from customers (Appendix 3). The high entry costs along with the keiretsu and their closed business links was identified as the most important barrier and one of the least likely to chance. This further strengthens my opinion that entry would be tough with restricted access.

There were limitations in this study, for example, there were only 60 completed responses. Two-thirds of those responses were from American members and only 13 of them were from Japanese members. In addition, the occupation of those that took part was not evenly spread. Nevertheless, it seemed that the respondents’ nationality or their occupation did not have any bearing on the final results.

5. Japanese financial keiretsu

Once the Tokyo Stock Exchange opened after the war in 1949, it was no longer the first choice for raising capital for many firms. As a result, the government enabled the development of bank-led keiretsu, which became firms’ primary choice. Consequently, every firm developed its network to include a bank to raise capital, for protection or to seek advice.

Also, in a study by Professor Paul Sheard on the main bank system in Japan, he concluded that banks act as credit monitors; “a substitute for the kind of screening and monitoring institutions that are prevalent in other capital markets, such as bond- and credit-rating institutions and security analysis institutions.” (Miyashita, K. and Russell, D. W. 1994, p.50)

In 1981, 84 per cent of the firms listed on the Tokyo stock exchange could be associated with a financial keiretsu, of which 76 per cent were affiliated with the six largest financial keiretsu (Bergl�f, E. and Perotti, E. 1994). Consequently, for a firm such as Experian, the barriers to enter Japan are very high and there may be very little demand for such a firm. I do not believe that a firm with affiliations with financial keiretsu would turn to the new entrant.

6. Conclusion

Having used a variety of sources for this report, I believe that I have sufficient evidence to form an unbiased opinion.

If entered correctly, the Japanese market could prove particularly rewarding with considerable benefits. However, when deciding on whether to enter Japan or not, the social and cultural factors are very important to consider. It is true that the Japanese business environment is losing its traditional values, for example, with the reduction of lifetime employment, however, the demographics of Japan show an aging population.

Also, the keiretsu do form a heavy guarded barrier to enter Japan and consequently, I believe that investors should investigate this further and possibly communicate with them. A recommended solution could be the possibility of a partnership or merger with an existing member of the keiretsu. For example, Experian could merge with a bureau within the Federation of Credit Bureaus of Japan.

Note: Information regarding specific keiretsu can be limiting and biased, and therefore I decided not to consider it. Also, to support my conclusion further, I could have used more recent sources.