Japan’s Economy Gains Steam From Manufacturing Heartland
Great article in Tuesday's WSJ. I'm hoping a free copy will become available online. The article details how the “Detroit of Japan”, Nagoya, is undergoing a re-birth and is helping drive recovery in the Japanese economy through boring old manufacturing industry.
It's very interesting to read about the growth and success of Toyota's suppliers in light of recent bankruptcy news about Delphi. The article discusses Toyota's conservatism, that they only started costly investments, in new capacity and technology “until it had stockpiled $30 billion of cash.”
“To maintain its competitive edge, Nagoya spends robustly on research and development.
Other developed countries have tried this dual-track approach to manufacturing, with far less success. In the U.S., public companies have found it difficult to invest as much in research because of pressure to maintain consistent quarterly financial returns, economists say. “
OK, so there are structural differences in the capital markets and ownership structures. We all need to be like Japan, right? Well, the Japanese companies have been learning and taking good practices from U.S. companies:
“The region's success challenges some of the conventional wisdom about what went wrong with Japan's corporations. Throughout the economic slump, government advisers and private-sector economists alike said repeatedly that longstanding Japanese customs like lifetime employment and cozy shareholder arrangements were inefficient and no longer working. “Japan's corporate system must change,” said a 1998 government research panel.
Japanese companies such as Nissan Motor Co., Sony Corp. and Toshiba Corp. heeded the call. They scrapped seniority promotion, hired results-oriented outside managers and board members, and appealed to shareholders with a U.S.-style system that rewarded managerial performance rather than seniority.
But many Nagoya businesses resisted such changes. They adhere to a staunch, conservative brand of Japanese corporate governance. Seniority is respected, shares are held by affiliates, suppliers or other loyal allies, and employees sign on for life. Companies are run exclusively by managers who work their way up the ranks.“
It seems like the ideal blend might be a mix of American and “Japanese” (in quotes because many of these are more so “Toyota” practices than all Japanese companies, generalized).
Another difference in approaches is the view of layoffs. While not all companies have “lifetime employment”, there are strong pressures to NOT lay off employees.
“There is intense loyalty to insiders. For 86 years, Yamazaki Mazak Corp., one of the world's largest machine-tool makers, has been run entirely by its founding family. The founder's son is the chairman. The chairman's son is the president. A fourth generation is being groomed for the future. The family owns all shares in the company. Even when things hit a rough patch in recent years, the company did not consider layoffs.
“Never,” said Teruyuki Yamazaki, the chairman, dismissing the idea with a wave of his hand. “Employees are the biggest assets of this company. How can we cut them?”“
I guess Delphi has forced loyalty through the UAW contracts, 4,000 workers getting paid to be in the “Jobs Bank.”
Final point is on the drive to eliminate waste (Muda, Muri, Mura) and a great story about Toyota's recently appointed leader:
“Nagoya executives say their thrift arises from a deep-seated aversion to waste. Toyota's president, Mr. Watanabe, recalled recently that when he joined the company 40 years ago, he was put in charge of corporate cafeterias. He studied eating habits with an eye toward eliminating waste. His breakthrough came when he noticed uneaten rice in many employee bowls. He modified the lunch line, forcing employees to fill their own bowls. “This way they could take as much as they wanted,” he explained. “It reduced waste.” As a result, Mr. Watanabe was selected for a team of young executives charged with finding production improvements across the company, and his career took off.“
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