The Rise of the Japanese Specialist Manufacturer

The time is the beginning of the 1980s. Six of us are seated along a rectangular table, three on each side, in a Japanese restaurant on the other side of the world from Japan. At one end of the table is a Japanese trade official talking in English to the second-in-command of the host country’s agency tasked with coaxing inward direct investment sitting opposite him. Diagonally across at the other end of the table is the executive of a Japanese manufacturer talking across to me, but in Japanese. Facing each other between these two pairs are the director of the agency and the president of the said manufacturer. Linguistic incompatibility has rendered them silent. In no uncertain terms, and making no attempt whatsoever to mute his tones, the executive is launching on a tirade addressed to me but aimed at the trade official. He detested that type. They just sat on their behinds and did nothing. They had no idea what work really meant. The message was not new to me. I had had first-hand experience with a number of small businesses in Japan where I had lived by that time for over a decade. I was familiar with the Mercedes-driving machine shop owner quivering with indignation as he recounted the frosty reception given him by an administrative flunky in ill-fitting trousers or a bank clerk half his age and commanding a tiny fraction of his income.

In the literature of the firm there has been a tendency towards polarization in the discussion. Typically, in the early writing the large corporation was considered the archetype to which all lesser firms should ideally aspire in their conduct of business, while from the 1980s especially, this assumption has been met with a counterthrust pointing to the differences, merits and distinctive functioning of the smaller enterprise. Little attention has been directed towards the medium-sized firm as an entity in its own right. All too often it has been subsumed under the rubric of the large or arrogated to the cause of the small. In the first case, implicitly at least, the impression is given that a company with a workforce of, say, 600 somehow has the capacity to act like General Motors with its hundreds of thousands. In the second, inclusion of relatively heavy-weight medium-sized enterprises in an analysis of SME activity can raise the performance mean, thereby somewhat distorting the picture as to what the average small firm — if indeed there can be such a thing — is capable of.

We have established in Chapter 3 the universal character of the LME. However, having said that LMEs are not unique to any particular national economy, there is still leeway to entertain the proposition that certain national economies can be distinctly amenable to the germination and spread of this kind of enterprise. Japan, it is argued here, is one such country. And furthermore, it is contended that this eventuality has been instrumental in bringing a distinctive quality to how the Japanese economy has addressed the outside world as it has internationalized and globalized. What Japan brings to the table of globalization has its own unique presentation and flavor based on the inimitable particulars of its preparation. The objective of this chapter, therefore, in the first instance is to probe the background and, in so doing, to unveil the scope opened up for the evolution of the Japanese LME by describing the surrounding historical circumstances.

A crucial point about Koransha and the other firms briefly discussed in the final section of Chapter 5 is that, having been established as modern corporations some time during the period from the last quarter of the 19^th century and the first decade of the 20^th, they are still up and running as viable LMEs having made it to the 21^st century. This infers a lot about the organization of the industrial structure in Japan and the arrangement of firms as discrete performers within that structure, as well as about how technology is dispersed and how it is acted upon and by whom. The shape of this organization and the implications of technology dispersal were to take on clearer definition in the second period, that following the end of the Meiji era in 1912 through to the culmination of the Second World War. So we now turn to how the samurai and the artisan confronted and contributed in their respective ways to this new phase, and then to the extent to which they merged their efforts, albeit haltingly and imperfectly, to meet the common challenges. Emerging from this activity, it will be argued, is a further substantiating stage in the evolution of the Japanese LME. This chapter explores the unfurling of events to the start of the 1930s, while the following chapter looks at the charged atmosphere of the nation on a war footing up to 1945 and the further implications this had for the industrial structure and the LME within that structure.

When Tanaka Umekichi passed away in the mid-1930s, Japan had been launched on a course of transformation shaped both by what it had become over 60 odd years of industrialization and by where events and its own militaristic excesses were now taking it. There could be no turning back to isolation and an idealized economic stasis sustained by traditional agriculture and native crafts. Despite the increasingly shrill calls of nationalist extremists for the country’s ‘Japanization’, the underlying mobilizing forces of change — even at the height of bellicose fervor and patriotism — were simply going in a different direction, and largely in the direction the West had set at that. The sports goods, curry powder, bicycle gears, carbon paper, ceramic dentures and hypodermic needles encountered in the previous chapter were all evidence of that, as were the country’s transportation system, its educational institutions, its police force and the plant operations and facilities of its major manufacturers, all of which owed their existence to a Western blueprint. Japan was becoming an industrial nation; by 1940 its secondary sector would account for approaching 50 percent of its net domestic production as against just over 20 percent at the start of the 20^th century, while over the same period its primary sector had declined from some 40 percent to under 20 percent (Okazaki and Okuno-Fujiwara, 1999).

The postwar years to the end of the 1980s, but particularly what can be regarded as the golden era during the high-growth phase from the end of the 1950s to the beginning of the 1970s, were very good years for the gestation of leading medium-sized enterprises in Japan. In the process there were three determinants specific to the period which assisted the outcome. The first of these was the emphasis placed on economic growth to the virtual exclusion, in the early stages at least, of broader social considerations. In this environment, the hopes of equitable dealings between all actors in industry and commerce were unceremoniously quashed in favor of an unremitting drive to catch up with and achieve parity with the most advanced economies. The second determinant was policy, and specifically industrial policy and small business policy, which over time merged to become in practice virtually indistinguishable. During the initial stage, first industrial policy and subsequently and briefly small business policy as an adjunct, were positive boosters of growth and therefore of the type of company that could make this happen, to wit the LME in many cases. Third was international pressure consequent not least on the first, for to gain the higher reaches of credibility Japan had to prove its standing by becoming an accredited and ranking member of the world’s new postwar economic mediators — GATT (the forerunner of the World Trade Organization), the World Bank, the IMF, and the OECD. For gaining such status it was incumbent upon Japan to conform to the demands of these organizations, most notably trade and financial liberalization, which conversely menaced growth ambitions predicated on protectionist inclinations.

The three key determinants shaping the Japanese economy and the LME within it discussed in Chapter 8 can be lodged within the realm of the ‘samurai’. It was the upper echelons of the national hierarchy who determined the absolute necessity of redemption and restitution, now to be realized through the avenues of economic progress. It was the central bureaucracy which shouldered the responsibility for arbitraging with global institutions to mitigate as much as possible the repercussions of demanding external forces, while at the same time devising measures to reinforce the economy and the component organizations within it in readiness for what was to come. But there is another determinant, and its essence resides with the ‘artisan’. It is monozukuri, or making things. Monozukuri purportedly implies for the Japanese something which is commonly and uniquely shared and mutually understood. In their eyes monozukuri acquires a particular essence which is quintessentially Japanese, just like their home-grown glutinous rice, whose sanctity renders price all but irrelevant. In its pure form the monozukuri mentality puts the making of things first; this is where the heart of the attention and concentration of the enterprise lies. Its indispensable stakeholder is the creator-engineer, the artisan. Ignore the artisan and you ignore monozukuri and how it is embedded in the firm as the fundamental driver of production.

The sample analysis in the last chapter runs to 2004. The period of three years since then to the time of writing is hardly long enough to distinguish with absolute certainty the emergence of new trends in the world of the Japanese LME, but enough has occurred nevertheless to enable the observer to be conscious of significant portents, signs implying the course of transformations in the offing. If they have a leitmotif it is the emerging foreign factor; the choices presented to Japanese LMEs are increasingly laced with an international flavor. Of the LME population of 429, five were listed for the first time on the stock exchange during the period from 2004 to 2007 while another 15 were upgraded within it. Over the three years in question no sample LME simply went bankrupt. However, a handful were delisted having been bought out or merged with companies in the same industry and of similar size as has already been recorded in Chapter 9 regarding toy makers Tomy and Takara. Most of this merger and acquisition activity was amicable, but there are omens that the alien hostile takeover is on the horizon. There was also one management buyout — another recent import — involving the soft drinks maker Pokka for reconstruction purposes. This case and Takara Tomy also point to another recently developing scenario: the involvement of funds in corporate management as shareholders. For Pokka and Takara Tomy they are welcome partners. For others they are aggressive interlopers and often, moreover, not Japanese. This growing foreign involvement in ownership together with the irrepressible rise of China are the two factors most likely to affect the destiny of Japanese specialist manufacturers over the coming decade.