Can Japan Compete?David W Edgington
CAN JAPAN COMPETE? By Michael E. Porter, Hirotaka Takeuchi and Mariko Sakakibara. London: Macmillan Press. 2000. xi, 208 pp. (Graphs, tables, figures.) US$49.50, cloth. ISBN 0-333-78658-0.
Will greater competition revive Japan's economy? This is the question asked by Michael Porter, one of America's foremost specialists on corporate management and strategy. Japan's economy suffered a lost decade during the 1990s, when it was plagued by poor economic growth, bankruptcies and rising unemployment. Porter and his research team argue that new approaches to competitive strategies (micro-economic variables) are required to restore economic vitality, rather than macro-economic policies associated with government spending and generating increased consumer demand.
The key to understanding Porter's thesis is the knowledge that the Japanese economy is really a dual economy, one comprised of a few outstanding industries and firms (electronics and automobiles) alongside a wider array of uncompetitive industries with very low productivity and high cost structures (agriculture and food products, as well as most service sectors such as banking, retailing, construction, transportation and distribution). This dual economy persisted throughout the post-war period due to government support for unproductive but labour-intensive industries, interlocking shareholdings within keiretsu, business groups, and absolute protection from overseas competition in sectors such as agriculture as well as in international capital markets. During a period of growing exports the more uncompetitive industries could be pulled along by the competitive ones, in what is often called the Japanese convoy system of industries. But, as pointed out by Porter, since the late 1980s Japan has ceased to generate sufficiently new sophisticated export industries for this to occur. Indeed, compared to the U.S.A., there has been little sign that Japanese firms have generated any world-beating industries in the new economy of software, information technology and the growing international service sectors (education, insurance, finance, etc.). Sony's GameBoy and Nintendo may be the major exceptions!
Overall, Porter's critique of the existing Japanese economic system, or at least why it is less suitable today than thirty years ago in the catch-up years of the post-war period, is well developed and cogent. In fact, it represents a new conventional wisdom about Japan that most commentators would support.
The final part of this book makes useful suggestions in areas of required reforms, both at the government level as well as for Japanese corporations. There are some interesting implications for national government, he believes, including new forms of innovation strategy as well as regional policy. Porter advocates greater decentralization from Tokyo, regional specialization and development of local industrial clusters. (Here, I believe that Porter has overlooked a wide body of existing research in Japan, from economic geographers and others, which already draws attention to historical and ongoing public sector support for industrial districts and clusters.) Porter also points to a number of reforms required in Japan's major corporations, such as Mitsubishi and Sumitomo, which he sees as suffering from lack of any distinctive strategies.
The strength of this book is in its many interesting case studies, studies of industries where firms and governments got things right, and where things went wrong. Porter's dissection of the 1990s points to a Japan where the government has been mainly responsive to the wrong things. His brightest scenario for the foreseeable future is that the political reform movement will support a new generation of start-ups, especially in areas such as information technology, bio-technology and internationally competitive services sectors. His very worst-case scenario is for the dual economy to continue and for those Japanese firms that are growing to continue expanding their capacity outside of Japan in Asia, Europe and North America. At the end of the day, and although Porter would probably deny this, many of his prescriptions would mean more reliance on profitability, greater reliance on stock-market values and shareholder influence, easier hostile takeovers and the laying off of workers. In other words, leading to a system that is far less Japanese and more like the Western one.
DAVID W. EDGINGTON
University of British Columbia, Vancouver, Canada
Copyright University of British Columbia Summer 2002
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