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[Editor's note: "Even an idiot can make money in easy times," said a Taiwanese business friend, once one of the largest garment manufacturers on the island and long since retired. "But the test of your commercial ability comes when times are tough. Try staying afloat then."

Shawn Beifuss of Asia Logistics Wrap, discusses these issues in a series of posts beginning today. We are grateful to Shawn for his insight and permission to post on Asia Business Intelligence.]

Part I: Overestimating Japan in its Rise, Western Business Underestimated Japan in its Descent

During Japan’s bubble years throughout the mid- to late-1980’s, there were many books and articles written for the Western business community that advocated the “Japanese way,” and warning the Western business community to either adopt Japanese practices or lose out in head-on competition. A widely read book that exemplifies this period is titled “Kaisha: The Japanese Corporation,” and is reviewed at Amazon as follows:

“Much of the literature on the legendary success of the Japanese corporation has rested on the premise that the Japanese possess certain cultural traits, not easily transferable to the West, that provide them with inherent advantages in executing corporate strategy (see, for example, William Ouchi's Theory Z). Abegglen and Stalk, however, maintain that the successful strategies of the best Japanese “kaisha” (corporations) are more imitable than not. They discuss such learnable, competitive fundamentals as debt financing, high retained earnings, a short-run concern for building market share, and a partnership with labor. While the preoccupation with the Japanese managerial style can become tiresome, Kaisha offers a different interpretation and is recommended.”

I was assigned to read this book during my first visit to Japan as an exchange student at Waseda University in 1996, already about five years into the post-bubble era. By that time, the vulnerabilities of Japanese firms were regularly appearing in domestic newspapers in the form of high profile scandal, bankruptcy and financial mismanagement that extended to large contracts private firms held with the Japanese government. The aura of the Japanese firm’s prowess seemed to be crumbling and looked to give way to the West regaining its sense of superiority as the leader in global business practices. This background context while reading and dissecting Kaisha provided insight into both the origins of Japanese firms’ perceived unrivaled ascension and the sources of their increasingly publicized failures in managing business realities.

One more trip to Japan from January to March of 1998 to complete my senior thesis helped solidify the feeling that Japan was entrenched, at least domestically, in a downward trajectory in terms of its business climate. During those three months I stayed with a good Japanese friend from a wealthy family, and even their household had become quite conscious of their spending, pessimistic about the Japanese economy’s future. Interestingly, my friend’s father, who was president of a large film developing chain, directed most of his criticisms towards the knowledge and education of his sons, and by extension the younger population of Japan. His concerns then about the learning and progress of Japanese youth seem very prescient today, but as I will illustrate in my second post, any wholesale dismissal during this period by Western firms regarding the state of Japanese competitiveness would have been mistaken.

[Part II may be found here.]

[Editor's Note: Today's post is the second in a series by Shawn Beifuss of Asia Logistics Wrap. Shawn continues his discussion of Japanese business management practices begun here.

On the subject of Japanese transformations, you may also wish to read "Major Legal Reforms Expected to Bring Wave of New Lawyers in Japan."]

After graduating from college and entering the workforce in the summer of 1998, I discovered that Japan’s leading companies were learning to adapt in markets outside of Japan quicker than many might have realized, or wanted to believe, in the Western business community. What opened my eyes was a four-year stint working for Denso Corporation as a production engineering liaison. Denso is arguably the world’s current leader in the auto parts industry and Toyota’s lead supplier. I worked in Denso’s Battle Creek, Michigan plant, Denso Manufacturing, MI (DMMI), where approximately 2600 American employees are currently led by a mix of American and Japanese management. The facility was the first established in the USA by Denso in response to Toyota’s own venture into Kentucky, and began production in 1986. A book titled “Small Town, Big Corporation” about the story of DMMI’s establishment is an excellent case study to read, but unfortunately is out of print and difficult to find. However, the point I want to make is that even while the Japanese corporate system was being advocated during the 1980’s and oppositely criticized throughout the post-bubble period, Denso was already establishing a hybrid of American and Japanese best practices at Battle Creek that would become the foundation of its strong business success and resiliency across North America throughout the 90’s and into the 21st Century.

As a liaison, I witnessed on a daily basis the tension of such a hybrid management system, but at the same time observed the characteristics that made the company quite adaptive and competitively stronger than American suppliers, such as Visteon and Delphi. This can be seen in the firm’s resilience and upward trajectory throughout the automotive industry’s struggles post-IT bubble and the 9/11 terrorist attacks—a period during which its customer base was almost 50% non-Toyota auto makers. Steeped in the principles advanced by Toyota via the Toyota Production System, Denso’s management succeeded in bringing about a culture where the predominantly American workforce adopted Japanese best practices and vocabulary in terms of team-driven, quality management and continuous process improvement. For example, words like kaizen, genba and heijunka do not need translation (continuous improvement, work floor, and leveling, respectively). Americans work alongside Japanese peers for every production line start-up and regularly participate in global innovation and quality circle tournaments sponsored by Denso Corporation headquarters.

At the same time, the predominantly Japanese management developed the ability to lead with the performance-based incentives and directness desired by American employees. Every Japanese president has been known to make regular visits to production lines to converse with employees; management feedback forums are held once per month so that employees can directly bring concerns from the genba to DMMI executives; and a famous process improvement incentive program supports individual kaizen suggestions that save DMMI money, but also over time provide employees with increasingly bigger rewards—the largest prize being a completely new, personally selected automobile via a DMMI customer. DMMI was able to do this through a unique co-management system where American managers pair up with Japanese transplant managers up to the vice president level (the president is always Japanese). Despite regular, ongoing tension regarding information sharing between Japanese and American managers, DMMI has been able to capture the strengths of both cultures in a management system that provides regular reviews, transparency, and a dedication to employee development and empowerment that has made the firm truly a model place to work.

Stepping back to the see the bigger picture, however, these advances by Japanese firms operating abroad often face barriers toward being modified and adopted, even partially, for Japan’s domestic business environment. My next post will look at some of the key challenges domestic Japanese operations face and provide some thoughts to remember for future discussion.

Highly Adaptive Abroad, Japanese Firms Struggle to Integrate Global Best Practices at Home

[Editor's Note: With many thanks to the author for his insight, we conclude Shawn Beifuss's series on Japanese business management practices. Part I may be found here; Part II, here.]

Fast forwarding from my departure from Denso in 2002 to today, and I currently have spent just over one year employed with a Japanese logistics provider based in Tokyo. Operating in the middle market and family-owned since 1924, this firm’s work environment illustrates the fact that the majority of Japanese companies—primarily the 2nd and 3rd tiers—have been heavily insulated domestically from learning the lessons that firms like Denso have by venturing abroad in the late 1980’s. Especially in the Japanese trucking industry, which is fragmented amongst approximately 60,000 firms, the traditional approaches to strategy management and human resource management remain entrenched.

This traditional style of strategy management possesses a decision-by-committee orientation that encourages highly iterative versus transformative initiatives. By iterative initiatives I refer to activities that seek to improve upon past practices without a significant change in management structure, systems and philosophy. Transformative initiatives on the other hand typically require a paradigm shift where the perceptions of and approaches to a firm’s current business realities experience foundational change. In the iterative environment, improvements can “get by” through reliance on the homogeneity of the Japanese workforce to bond together towards a common goal. This approach doesn’t employ communication tools that explicitly link a pronounced strategy or policy to individual objectives—it is assumed “the group” collectively understands their role in relation to policy announcements.

Obviously, such an iterative approach requires a longer time horizon to effect change; in this context, human resource managers can feel at ease with the traditional seniority-based system that defers to length of employment or age level. Training in such an environment also follows an iterative approach—absent any external effort, employees learn at the pace of the firm. In the past, when Japanese firms could rely on a lengthy if not lifetime period of loyalty from their employees, this system made sense or at least was sufficient. But the Japanese employment picture of today has changed dramatically, and Japan’s 2nd and 3rd tier firms along with the Japanese tertiary educational system are struggling to keep up. Data released earlier this year on the program “Up Close” via NHK, Japan’s public broadcaster, showed that more than 30% of all new employees freshly graduated from college quit their job within three years.

From my experience working in my current firm and discussing this trend with our own new employees just out of college, as well as with friends working in other companies, it seems that the following conditions generally exist:

1.) Lack of fundamentals upon university graduation: The majority of university students in Japan graduate with very few of the skills necessary to be successful employees via their own resources. The university system is such that it is still generally based on the old system of deferring to companies to train and educate the workforce to be productive and successful.

2.) Poor utilization of new human capital on-the-job: Since a significant number of graduating students no longer enter companies with the expectation of seeking lifetime employment or with the loyalty traditionally expected of new recruits, a mismatch between training and employee placement occurs. The result is many university graduates learn on the job at a pace below their abilities—I estimate anywhere from only 30-50%—and quit the firm before the company is able to maximize the contribution of that employee—this in a period of 3-5 years. As an example, one ex-coworker of mine spent three years in the finance department but, after leaving the firm, realized in later interviews that his knowledge of financial management and financial tools significantly lagged his peers of the same age.

3.) Death spiral of low expectations hindering corporate performance: With a significant number of new employees lacking the discipline and resourcefulness to self-educate and the majority of Japanese firms lacking the training systems to maximize employee contribution, there is an increasing trend of looking outside the firm for managerial talent. Often, these management hires are older workers forced into retirement in their 50’s and 60’s by larger firms restructuring or descending from the hiring firm’s own customers. In this case, the often lack of knowledge of the firm and its services/products upon employment ensures at least a short-term drop in corporate performance. At the same time, lower-level employees become more and more discouraged with a system that fails to provide dynamic personnel development and promotional opportunities that match pace with the challenges of today’s rapid globalization. A death spiral ensues where the firm continues to rely on older employees with a lack of practical and current business knowledge for management positions while these managers are considerably negligent in developing younger employees to eventually replace them.

The top-tier firms manage to hold their own in terms of training and have done a great deal to adapt to globalization and the use of global best practices. As the first and only Westerner to be hired in my firm, I am attempting to change the approaches and perceptions described above one step at a time. But these types of firms can hire the best talent in the world and they will be relatively marginalized or fail because they work in a system that does not identify, maximize and reward talent. Rather, a system that does cultivate talent in the appropriate manner can turn ordinary employees into stellar performance contributors.

Even being constrained by the type of system described above, I feel my Western education has cultivated in me the resourcefulness and discipline necessary to educate myself as needed to reach my professional goals. I honestly believe that one reason Westerners excel in innovation and leadership more quickly upon entering the workforce than many Asian employees is due to the Western tertiary education system. Although the students of Asian countries excel at the high school level in the testing of math and science knowledge, the majority of these students fall far behind at the tertiary level—in essence, the critical thinking and intensive focus on individual excellence that drives Western education is very absent in Japan’s universities. The difference can be clearly seen when comparing Japanese who have studied overseas at the university level versus the majority of their peers back home. So as a Japanese university student, if the first firm I work for upon graduation is not going to provide the foundation for success, it is up to that student to make-up the gap in moving along the learning curve. Unfortunately, from my experience so far, this perspective and skill set is difficult to transfer to my co-workers without being in a position as their direct superior.

Gradually, as more and more Japanese domestic firms realize that having a domestic-only business doesn’t exclude them from responding to the demands of globalization, those firms are demanding more from their management systems—especially such tools as metric-based performance measurement. This change will be painful and those Japanese firms that don’t initiate such a transformative effort will find themselves acquired by companies that will force it upon them, or gradually fall into bankruptcy, ceasing to exist. The strength of Japanese companies overseas, especially in the automotive industry, illustrates that it is possible for Japanese firms to succeed when the environment demands it. For Japan’s numerous domestic companies, it is of great importance to benchmark these success stories towards transforming their employee management syste

Ken Worsley's excellent Japan Economy News provides this morning's suggested reading.

It is a fact that American exporters in many industries assume a holier-than-thou mentality. "My product is American, and, therefore, it's great." That is no longer true. "Made in America" was once synonymous with high-quality, if only because Americans had the means to produce when others did not. The American-made products of today often epitomize mediocrity -- just look at the entertainment products we export -- and cost more than those produced elsewhere.

We as exporters need to remove pride from the equation until it is damn well deserved. Ask yourself and your organization this question: what are we doing to ensure that my international customer receives the best value for his money? Then ask it of your customer. The disparity in the responses will very likely shock you.

Van Etten v. Mitsui, 09-cv-1071, brought in Federal Court in Manhattan, alleges that the Japanese company practice of installing a "glass ceiling" above which only Japanese may rise constitutes an unlawful practice of discrimination. [Download the complaint..]

“Mitsui USA and Mitsui Japan have a strict policy requiring that the top positions and virtually any position managing personnel at the company be filled by the all Japanese/Asian staff,” according to the complaint.

Japanese routinely informed me, working in Tokyo and Osaka in the 1980s, that no Gaijin would ever be permitted to manage a Japanese. One Englishman, fluent in Japanese with Japanese wife, had spent 20 years with a major local securities firm. He was promoted to Senior Manager of his department with its one direct report-- himself.

Only within the past 10 years has this taboo been broken in Japan. In 2005, Sony, where I once worked, appointed Howard Stringer as top dog, raising hackles throughout the rank and file. And Sony is regarded within Japan as a company which routinely breaks new ground in HR practices.

However, this suit alleges a glass ceiling in Japanese companies operating in the U.S. Sad to say, I have no recent personal experience directly on point here, i.e. in the U.S.. But, it is, at first glance, an entirely believable claim, based on strongly-held cultural ideas and traditional practices.

Is the executive management of Mitsui and its subsidiaries in the U.S. entirely Japanese? Does the plaintiff speak Japanese? How will the plaintiff prove an unspoken rule -- a silent convention, as it were -- that may no longer be applicable in Japanese companies in the United States? Let's keep an eye on this one.

Times are tough and guilds are supposed to protect their own, as the Japanese Bar has done, here requiring all foreign attorneys operating in Japan, even, apparently, employees supervised by gaiben partners, to register as gaiben

A requirement that all foreign lawyers be registered as gaiben would fundamentally change the landscape of firms operating in Japan. To qualify as a gaiben, a lawyer must have practiced for at least three years, two of which have to have been outside Japan. The registration process can also take anywhere from six months to two years.

To download the van Etten v Mitsui complaint discussed in this post, click this link.

I've now had a chance to review the complaint in Van Etten v. Mitsui, 09 CV 1071, a reverse discrimination class-action suit brought by an American executive of Mitsui USA fired in 2006.

While I was originally favorable toward the idea of such a claim, the complaint itself tends to move me in the other direction. Avoiding the legal issues for the moment, let's look at a number of relevant cultural issues indicated in the text which render much of the complaint less persuasive than hoped for.

Hackle #1

The first hackle on my sensitive spine raised itself in profound discomfort in only the second paragraph of the first page:

Plaintiff brings this action to challenge a pattern and practice of race and national origin discrimination and retaliation committed by Mitsui USA and Mitsui Japan against current and former non-Japanese/non-Asian employees.

This last phrase -- non-Japanese/non-Asian -- is curious in itself. Does this equate Japanese with all Asians? Or does it make a distinction between the two?

And besides, what is an "Asian?"

For several centuries, the word “Asia” referenced a geography of indistinct determination, stretching from Syria to Japan, and from Siberia to the Andaman Islands, encompassing all nations, races, skin colors, languages, cultures. Essentially, a mishmash, due in large part to the impoverished understanding of Western explorers and mapmakers.

However, no Chinese I know would wish to be lumped together with a Japanese, or mistaken for him, and vice versa. Nor would a Taiwanese wish to be lumped together with the Shanghaiese, etc. But Westerners who didn’t know better, for no fault of their own -- they were only just coming in contact -- essentially classified everyone who lived in basically the same place: faraway.

Along comes 20th-century America, with its increasingly fractious ethnic and racial "melting pot," the elements of which, despite their occasional averments to the contrary, make strong demands for what they see to be their own people, community, tribe, but not for the community at large. Over time, the law recognizes certain races and ethnic groups, providing benefits to those with specific attributes. A census must be taken every decade and various groupings are statistically analyzed. It is a convenient shorthand to group Indians, Chinese, Japanese, Papua New Guinean aborigines, Uzbeks and Fijians into one mother lode of a political grouping, the sheer weight of which would seem to have somewhat nearly the political capital other large groups like blacks and Hispanics would have.

But there is no such thing as an "Asian." (Well, perhaps there is under federal law, but that fantasy I will avoid for the moment.) Things are too complex for this now rancid simplification.

In the complaint under discussion, the phrase “non-Japanese/non-Asian" is particularly troublesome.

Note this paragraph 18:

One of the central elements of the pervasive discrimination at Mitsui USA and Mitsui Japan is the use of and favorable treatment towards "rotational staff," who are employees of Mitsui Japan set to take tours or rotations with Mitsui USA, usually for a term of three to five years.

Rotations are common in international corporations, especially among Japanese companies, for whom the practical experience of in-country work and residence has always been held to be invaluable. It is a practice Americans have cut out of their budgets, much to their discredit and disadvantage. The bias away from direct in-country knowledge within the American company is, in my opinion, a substantial reason for American loss of market share globally. How is it, do you think, that the Japanese automakers have learned so much about operating successfully in the United States, while we now see the American automakers on bended knee begging for government assistance?

Generally speaking, who is rotated out of Japan? A young Japanese with some in-country skills or scholarship who shows promise -- someone who is marked for his potential to rise perhaps 10 or 20 years down the road.

I very strongly doubt that any non-Japanese -- the “Asian” referred to in the complaint -- would be drawn from India or China into a rotation into the United States. In fact, none is mentioned. No one without a Japanese surname, with the exception of a reference to two former complaints by Americans against the company, is even mentioned in the entire complaint.

To what classification is the complaint referring with the phrase "non-Japanese/non-Asian?" It is this ill-defined phrase, which recurs dozens of times in the complaint, that thoroughly confuses things for me. The fact finder may not find it so, relying upon the common Western conglomeration of all things "Asian."

But if I were the defense, I would attack it.

Hackle #2

My jaw dropped when I read paragraph 67:

Mr. Van Etten was also disadvantaged within Mitsui USA by the fact that Japanese was used to communicate, orally and in writing, throughout the day by top Mitsui USA/Mitsui Japan executives as well as with/by their underlings. This practice was rampant, notwithstanding the fact that non-Japanese/non-Asian employees would not be able to understand, leading to greater isolation and exclusion of non-Japanese/non-Asian employees. By way of example only, Mitsui USA held monthly, quarterly and annual business meetings where Mr. Van Etten's business was discussed, but the meetings were conducted in exclusively Japanese and no national staff were included.

This is an extraordinary assertion and, in my eyes, damns the plaintiff and not the defendant. Essentially, it makes the claim that, for purposes of employment discrimination claims, all communication must be made in the English language.

The plaintiff, thus, despite having worked for a Japanese company for 18 years, had never learned the language of its parent company. In his position, most likely, he would not have to. But what language would he speak if were he to become a top-level executive having to make his reports to headquarters in Japan? English? If the plaintiff had been thoroughly fluent in Japanese, had lived and worked in Japan and possessed the very significant in-country skills required of a top-level manager, I would give greater credence to his claim.

But it is entirely unpersuasive to suggest that an American employee of a Japanese subsidiary without such skills is thoroughly qualified to take on a senior role, which would include significant, perhaps daily, contact with headquarters, and an understanding of Japanese practices in the home office. Life is very different in the office in Tokyo than it is in Manhattan.

Hackle #3

By his own complaint, Mr. Van Etten was extremely accomplished -- a producer. He claims that his termination for discrepancies in expense reports dating to 5 years prior was, in a nutshell, trumped up because he complained vociferously about discriminatory practices.

In and of themselves, these factual allegations, as written, do not portray him as one particularly suited to the resolution of a major dispute within a Japanese company. He must have some skills, because he lasted in there a long time, and life is tough going in a Japanese company.

But the complaint shows him to be repeatedly complaining, over the course of several years, orally and in writing, while hinting at a distinct lack of respect for many of his colleagues. While the record of complaints may be necessary evidence to show notice, it, on the other hand, gives us a clue as to the tension in the office that appears to have surrounded this issue.

Read this from paragraph 84:

...Defendants admit that Mr. Van Etten complained that the rotational employees were not qualified for the positions they held and that the practice of bringing Japanese/Asian executives from Japan amounted to discrimination against non-Japanese/non-Asian employees could have been awarded these positions. They also admit that Mr. Van Etten complained that he should have been promoted to general manager and was not because he is not Japanese/Asian.

Numerous incidents, involving HR and executive management, are detailed in the complaint.

While Japanese are more likely to expect open friction within an American workplace, and rather more tolerant of it, it is still considered at the very least unpleasant. Often, when taken to extremes, it becomes a distinct mark against the one who breaches that etiquette.

This is not to say that resolutions are always possible in a Japanese company -- often not -- but simply that jousting is the art of remaining hidden, while advancing in plain sight. Mr. Van Etten may be a complete gentleman in an American sense and he may have comported with the law, but the facts as related by his attorneys give the impression that his repeated straightforward complaints to HR and, more importantly, to Japanese senior colleagues accelerated the movement of the grindwheel, upon which the ax was finally sharpened.

The complaint raised other hackles as well, including the assertion that discipline was more tolerant of Japanese than of Americans, which assertion I find -- based on my own experience and that of other foreigners I know in Japanese enterprises -- almost totally incredible.

I am eager to read Mitsui's answer. More on this case as it develops.

Performers and date of performance unknown. Looks like a rehearsal(?).

素晴らしいよ！　

[Thanks to Mother Zion for the onpass.]