Decline of Japan's Predominance in Asia

Hideki Yoshihara
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Hideki Yoshihara: Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan

No 124, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Until around 1980 Japanese companies occupied a predominant position in Asia. In terms of the scale of operation, level of technology and international competitiveness, they surpassed local Asian companies. They enjoyed number one position. International business of Japanese companies in Asia had two characteristics. The first is so-called flying geese pattern of investment. Japanese companies invested first in relatively well developed countries like Taiwan, Hong Kong, Singapore and Korea. Then, they shifted their investment to Thailand, Malaysia, Indonesia and Philippines. Lastly, their investment extended to China and Vietnam. The second characteristic is that their Asian operations are managed by Japanese persons using the Japanese language. CEOs and other top management at most Asian subsidiaries are Japanese expatriates. And they manage their companies having constant communication with their Japanese head offices in the Japanese language. Japanese companies in Asia have bright and dark aspects. Factories are bright in the sense that they achieve good performance with motivated local workers. Japanese production system works well at their Asian factories. On the other hand, administrative offices have problems. They do not attract high level local managerial, professional and engineering people. Limits of Japanese style international management are evident at the offices. In forecasting the future of Japanese business in Asia, China may be the most important factor. China has continued rather high level of economic growth for more than twenty years since its basic policy change in 1978. Will China's economy grow in the future? As the market economy will develop, the tension between the market economy and the politics of socialism will increase. Will the politics of one party system be able to coexist with the market economy? It may be that Japanese companies have already hit their peak of their overall international competitiveness in Asia. They might have already started to go on the declining process. They invest more in foreign countries than in Japan, which results in the hallowing of industry at home. They are facing various kinds of resistance to change such as so-called lifetime employment, existing organization routines, vested interests and sunk costs. Japanese companies are managed by old men and thus lack in strong leadership.

Pages: 24 pages
Date: 2001-12
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