Japan Inc: back to basics as U.S. model discredited

[Joanne98]

Source: Reuters

TOKYO (Reuters) - Leaders of Japan Inc. believe they have learnt a lesson from the global economic crisis -- namely that the U.S. business model with its eye on short-term gains has failed and it's time to return to longer-term strategies.

Recent remarks by corporate chiefs from companies like Suzuki Motor Corp (7269.T) and Chugai Pharmaceutical Co (4519.T) underscore a desire of Japan's corporate leaders to reject pressure from what they see as short-term interests to concentrate on more sustainable returns.

In one of the most public displays of the current corporate zeitgeist, Osamu Suzuki, who has steered Suzuki for the last 30 years published an essay in February rejecting what he saw as short-term interests tied to earnings.

His views often attract attention, as analysts credit him for having turned his company into a globally-competitive carmaker by making inroads into India decades before it boomed, and expanding revenue more than tenfold.

Arguing against calls from some securities analysts to depreciate the company's factories gradually so that near-term earnings would not suffer as much, Suzuki said the automaker's long-term interests were better served by writing down the cost quickly.

"I have no intention of changing our three-year depreciation policy for our production facilities. We follow the principle of gloom first and ease later," he wrote.

Suzuki's stance and those of other corporate chieftains pit them against fund managers, whose industry is welded to producing quarterly returns and who fear corporate Japan may return to its habits of old -- ignoring the shareholder


Read more: http://www.reuters.com/article/ousiv/idUSTRE56F1PL20090716

[RC]

1. Somebody finally gets it.

The next bottom line is just that, the next bottom line. It is the stuff way down the line we should be worrying about. If we had been doing that, we and the world would not be in this financial mess. And neither would we be giving money to the same short sighted con artiest that can't see past the next bottom line in an effort to spend our way out of debt.

[Judi Lynn]

2. Good for Japan. n/t

[hayu_lol]

4. Japan has traditionally gone for the long term in both...

production and research and development. In the early days of the Japanese auto industry shipping to the American market, if a model was failing to gain market share, the Japanese stopped the export production lines, redesigned, retooled, and started cranking out the changed models as quickly as possible--taking the loss up front and their success clearly shows that they were correct in their thinking, planning, and marketing.

Our business schools have been cranking out short-term thinking/planning bean counters. Not too much effort was made to look 5-10-15 years ahead to see where they wanted to be. We don't do that. What happened to our electronics industry is proof of the failure of always being concerned with today's bottom line and forget about tomorrow and the day after.

We make the innovations in a number of products, sell the innovations abroad, and continue to make the same flawed stuff here. As a result of this boneheaded approach, we make and sell electronics(aside from defense products)for no one. Our factories are in the history books.

Interestingly enough, the guy who developed the long-range plan was an American--the Japanese listened to him, we Americans did not. I forget his name, but I bet someone on DU will chip in with it.

American business is too busy counting beans when what they needed to do was plant some.

[Steerpike]

3. If this were a perfect world

This would be the most important story of the year.

[liberal N proud]

5. Maybe this will catch on in the US

US business have long sought to follow Japanese business practices in manufacturing operations with the LEAN culture programs.

Maybe this will filter back to the US.





I wont hold my breath!

[pnorman]

8. My recollection is uncertain and I'll have to carefully reconstruct it

and then Google further. But Thorstein Veblen discussed Japan with much insight, and at a pretty early date. I believe it would be relevant to this discussion.

Here's his Wiki: http://en.wikipedia.org/wiki/Thorstein_Veblen

pnorman

[happyslug]

6. It is worse, Japan Model itself as the US idealized itself in WWII and the 1950s

Deming had started his research on how to improve manufacturing just before WWII, he applied most of his knowledge in the War Effort. After the War he studied what had worked and not worked and came up with the "Deming School of Management". Deming was a Statistician thus kept looking at the statistics and came up with some conclusions that were compatible with US tax policy at that time, but even then US Corporations were noted for rejecting it for Deming had not come up through Management Ranks but as a Statistician.

In the early 1950s Deming made his now famous trip to Japan. He gave his lecture on how Japan could improve its products (Japanese products of the 1950s were know to be crap). Japanese businesses embraced his advice and even named the highest price in Japan for improvements in manufacturing for Deming. Basically Deming told the Japanese that the you output can be no better then your worse input, so don't concentrate at the what you are doing the best at, but look at where your worse input is and concentrate on that point. After a few years at improving those worse inputs your overall quality will go up. The US business community rejected the advice of Deming while Japan embraced it, and now seem to be embracing it again.

Now, the US had a factor that FORCED US Corporations to look at long term (I.e. Five years or longer, what Deming said to look at) and that was the 90% top tax rate AND the 50% disregard on income IF the income was the product of Five years investment (You made an investment that produced a huge profit and that profit was over a period of less then Five years, the IRS received 90% of that profit, but if you held it for FIVE YEARS OR LONGER, the IRS only received 90% of 1/2 of the profit i.e 45% of total income).

The later, the 90% tax rate and 50% long term disregard forced Corporations to look long term, what they did this year did not matter, their investors did not care for the IRS would get 90% of it, but over any five year period such profit would be taxed at half the stated rate).

These two influence help American Industry stay competitive through the 1970s (Even with the huge inflation of the 1970s, US Industry kept on looking long term). Under Reagan the Income Tax was "Reformed" and the overall rate dropped to 35% and the 50% long term disregard was abolished (The rate had since gone up slightly, but not even near the 45% effective tax rate of long term investments prior to the 1960s). This lead to a change in Corporate policy, previous do to the affect of the high tax rate and 50% long term Capital Gain disregard, Corporations planed their operations for maximum long term income i.e. that any income earned by people with large income would be long term Capital Gain. Since Reagan and his reform of the Internal Revenue Code, Corporations have come under increasing pressure from investors for short term gains, most investors do NOT care what will happen in Five Years, the tax rate on their investment is the same. Thus since Reagan Corporations have Stopped looking in terms of Five< Ten or Twenty Years down the road, and looking only at the profits this year, and this policy, driven by Federal Tax Policy, is what is causing US firms to fail. Long term investment in now anything over one year in duration, and no one thinks in terms of Five years, and of you understand industry and its need for long term Capital Investments this short term view is killing them. You can built a new Walmart in Three months, but a New Automobile factory in 3-5 years, thus you see a lot of new Walmarts but almost no new Factories in the US.

We need to change the tax code to return to a High End Tax Rate of 90% subject to a 50 % Long Term Capital Gain set-off, it was good enough for FDR it should be good enough for the US Today.

More on Deming:
http://en.wikipedia.org/wiki/W._Edwards_Deming

[cascadiance]

7. When will we go back to the OLD U.S. model that Heny Ford put into place...

of producing goods and services that your average employee can afford, instead of just treating the working class as chattel to produce the goods and services for the elites' financial manipulations/growth/power... Though I guess that latter strategy has pressured us since the robber barons era too.

[Lydia Leftcoast]

9. I am convinced that the U.S. (beginning with Reagan) pressured Japan

to adopt "international" business practices (i.e. U.S-style predatory practices) because they knew it would weaken them.

(Judging from a conversation I had with Art_from_Ark when we met up in Japan--he's lived there for over twenty years--, he agrees with me.)

Under the old system, companies hired liberal arts graduates, trained them by giving them temporary assignments throughout the company so that they would learn every aspect of the business, and then put them on permanent assignments in the department that seemed to be the best fit. In that way, when someone was permanently assigned to marketing or accounting, it was because the marketing or accounting department had observed that individual on the job and decided that he or she would be a good fit, not because the person had majored in marketing or accounting. The experience in multiple departments gave them a more global view of the business instead of a narrow focus on number crunching.

[applegrove]

10. Thank you Japan!