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 / First Quarter 1997 / Issue 6(originally published by Booz & Company)


The Art and Practice of Japanese Management

Meanwhile, the emphasis on consensus has made managing foreigners difficult. Japan's multinationals traditionally concentrated on exporting rather than investing abroad, partly because they felt that their manufacturing system was so Japanese that it could not survive on foreign soil. Now, thanks to the high yen, fears of protectionism abroad and globalization, they have no choice. The Nomura Research Institute predicts that, by 1998, almost 40 percent of the production of Japan's five biggest electronics groups will be offshore. In 1994, Toyota produced 48 percent of its cars overseas; by 1998, that portion will be around 65 percent.

The basic lean-production system has actually been relatively easy to export. However, merely getting people to manufacture things efficiently is often not enough. Clever multinationals have been able to engage their foreign workers' brains as well as their hands. Yet Japanese salarymen have famously found it impossible to manage hairy artistic types: witness Sony's and Matsushita's nightmares in Hollywood. But the cultural insensitivity of many Japanese executives can even make it difficult to manage humble production workers. Sanyo Electric provoked an angry strike in Indonesia when it refused to allow 33 female assembly-line workers to wear traditional Muslim dress, citing safety reasons.(6)

Western employees in Japanese banks complain that there is a two-tiered management system -- a dummy one in the host country and a real one between the Japanese management and their bosses in Tokyo. They are forever making decisions, they murmur, only to have them countermanded by a telex from Tokyo. In 1991, a Congressional committee looking into the employment practices of Japanese-owned companies in the United States listened to a litany of complaints: that a handful of Japanese made all the most important decisions, in collusion with the head office; that a "rice paper ceiling" stood between the non-Japanese employee and serious promotion; that the Japanese discriminated on the grounds of race and sex; and that the Japanese were unwilling to listen to ideas from foreigners. Consensus, it seems, is only consensual if you are Japanese.

While the rice-paper ceiling has deterred foreigners from working for Japanese firms, xenophobia has also kept able Japanese from working abroad. Fearing that a spell away from headquarters may handicap them in the promotion race, many salarymen refer to "overseas banishment." Mothers often stay at home so that children can continue in Japanese schools, an arrangement that imposes huge strains on families. Those children who spend any length of time abroad run the risk of being ostracized at school and accused of "smelling of butter."

Japan's dithering over innovation and internationalization seems to reflect a failure not just of particular business leaders, but of Japan's whole approach to leadership. All that concern about consensus was fine when Japan's economy was growing by 10 percent a year. But a flat economy is testing the ability of bosses to make hard choices. They have to get rid of surplus workers (or at least retire them early) and decide which line of business to focus on. Competition from tightly managed Western companies means that Japanese companies need to make decisions quickly. And Japan's increasing involvement with the rest of the world, through joint ventures and overseas operations, means that Japanese managers can no longer rely on a decision-making process that is comprehensible only to their fellow Japanese.

East Meets West: The Remix

Anybody who considers writing off Japanese management, however, should remember two things. First, that the country remains the world's leading center of manufacturing excellence. And, second, that Japanese businesses have a genius for turning adversity into advantage. Japan's lack of natural resources encouraged the Government to invest heavily in education. Two oil shocks and several steep rises in the yen have acted as powerful spurs to innovation. Several times before, Japanese car imports to the United States have dropped following steep rises in the yen; each time, Toyota City has found new ways to make lean production even leaner and come back to humble Detroit again.

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