Asian forces alter the status quo

The Global Competitiveness of the Asian Firm
January 27, 1995

In the mid-1950s W. Edwards Deming travelled from the United States to Japan to give a series of lectures which revolutionised the global economy. Deming stressed the need to move away from the monotonous routine of the de-skilled assembly line which reaped economies of scale through the mass production of standardised commodities. The future of the competitive firm lay in the full use of the worker's mental capacity. The development of flexible, multi-skilled, egalitarian workteams would permit a firm to capture cost-reducing economies of scope: the lower volume, higher quality production of several commodities using similar raw materials, components and intermediate processes.

Deming's arguments transformed the Japanese production process. They were reinforced by both the early emergence of close, non- equity inter-firm networks and later the development of new information technologies. As a consequence, Japanese firms developed a unique competitive advantage: the ability to manage the acquisition and utilisation of learning so as continually to transform weakness into strength.

It is countries which benefit from corporate competitive advantage. The superior performance of Japanese firms has reshaped both the Japanese economy and global economic relations. Between 1956 and 1970 Japanese GDP grew by nearly 12 per cent per year. Japan made its mark globally by exporting: between 1965 and 1990 Japan's share of world exports roughly doubled, to stand at 10 per cent. Further, the gradual appreciation of the yen fostered outflows of investment. Some outflows went to the United States and Europe. Thus, by 1989, 400 Japanese subsidiaries in Europe employed 50,000 people. However, the bulk of outflows went to other east Asian economies, facilitating their development. The results have been dramatic: while Asia accounted for just 4 per cent of global GNP in 1960, by 1990 it accounted for 25 per cent and by 2000 it will probably account for 33 per cent of world output.

The success of east Asian firms in capturing world markets has had a deep impact upon international business studies. A new and useful addition to what is a rapidly growing literature is The Global Competitiveness of the Asian Firm, which brings together 18 papers originally delivered to the eighth Euro-Asia Management Studies Conference held in October 1991 at INSEAD's Euro-Asia Centre in Fontainebleau, France.

Divided into six parts, the volume primarily consists of case studies of firms and sectors of varying quality. Thus, papers on multinationals from China, the late success of Japanese firms in China, and the processes by which Samsung and Lucky-Goldstar emerged as major international electronics firms offer specific insights into some of the particular strengths of Asian firms when they internationalise. Similarly, papers on Japanese electronics and pharmaceutical firms in Europe as well as Japanese subsidiaries in the UK are very good in highlighting both the initial role of tariff-jumping in fostering entry into Europe as well as the importance of eventually localising research and development as European activity accelerates. Finally, papers on comparative competence building, comparative managerial behaviour and comparative approaches to strategic alliances each develop novel analytical methods in order to assess how Japanese firms are capable of building success in underdeveloped areas of corporate activity.

However, other papers do not fare as well. Notwithstanding an excellent contribution by Tetsuo Abo on Sanyo's overseas production, the two other papers on the ways in which Japanese affiliates adapt to local conditions are repetitive. Despite its scientific appearance, the paper on the future of Japanese management is little more than structured guesswork. All three papers which attempt to locate competitive strength in cultural norms are exercises in simplistic sociology and do not adequately recognise the historical, political and economic forces out of which culture is constructed and reconstructed over time.

The volume displays two common weaknesses of current managerial scholarship. First, it fails adequately to locate the success of firms within the specific macroeconomic conditions which facilitate such success. Thus, the multiplier effects of the Cold War in Asia and public policies which promoted extraordinarily high domestic savings both had profound effects upon the development of Asian firms. It has yet to be resolved whether the macroeconomic environment of the Asian economies or the microeconomic logic of the Asian firm explains the dazzling success of east Asia. Second, the volume consistently assumes that the employment relationship within Asian firms is harmonious. Such an assumption should be tested. There is evidence to support the view that the process under which people labour in east Asia is a frequent site of social conflict.

Regardless of these issues, and despite some irritating typographical mistakes, The Global Competitiveness of the Asian Firm will be welcomed by those interested in international management issues. It provides insights into new forces at work in global competition as well as useful case studies upon which to structure the teaching of corporate strategy.

A. Haroon Akram-Lodhi is a senior lecturer in economics, South Bank University.

The Global Competitiveness of the Asian Firm

Editor - Hellmut Schutte
ISBN - 0 333 59890 3
Publisher - Macmillan
Price - £40.00
Pages - 379pp

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