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Lessons of the Japanese mavericks

The "Western" methods of maverick Japanese companies now succeed where traditional "insider" methods fail Walter E. ShiU

Reprinted fnim the Wall Street Journal

OR SOME YEARS NOW, Western managers attempting to succeed in Japan have been advised to adopt Japanese sales and management practices and function as genuine "insiders." Today, however, as the bubble economy deflates and the political system realigns, the dynamics of competition in many Japanese industries now favor the skills and experience of Western firms.

The recent successes of consumer-oriented businesses like Toys "R" Us, Tower Records, Dell, and Compaq suggest that much of the conventional wisdom about what it takes to do well in Japan - shouldering one's way into established distribution networks, for example - is becoming less important than the ability to manage innovative retail formats or carry out sophisticated market research.

Maverick methods
The Japanese branches of multibillion-dollar American or European parent companies think of themselves as the equals of their huge Japanese competitors. But they are in reality only small or medium-sized companies. So their model for success should be the smaller Japanese companies that have no wish or need to become members of the "club." These entrepreneurial, high-growth companies defy the rules of the game and operate in a manner that is actually second nature to many Western firms. And the mavericks are flourishing. Keyence, an Osaka-based maker of laser-based factory automation controls, is growing at a rate of 30 percent a year with an after-tax return on sales of 20 percent. Its secret: bypassing the multilayered distribution system in favor of its own nationwide delivery system and direct salesforce. And this force is compensated on the basis of performance, not tenure. Its president is convinced that a small company cannot afford the inefficiencies of larger organizations. This means giving up many familiar things: official titles have been eliminated, for instance, as have the obligatory drinking parties after work and golf outings.




Mabuchi Motor, a Tokyo-based supplier of small electric motors like those found in VCRs, offers only low-cost, standardized products. It was able to break the hold that keiretsu, through interlocking ownerships, have on Japan's markets for electrical goods by establishing a clear, low-cost position for critical, cost-sensitive parts. It did so by importing everything it sells and by refusing to make the endless customer-specific modifications urged on it by industry practice. The reward for this radicalism: a 40 percent share, compared with Matsushita's 9 percent. Aoyama Trading is a bare-knuckled Hiroshima-based discount retailer of men's suits with some 350 outlets and a return on sales of 20 percent. It terrorizes conventional department stores with such unconventional tactics as $25 loss leaders. Its lowcost position depends, in part, on its unusual willingness to assume inventory risk. Unlike other clothing retailers, it has agreed not to return unsold goods to the manufacturer. And, being more at risk than traditional players in the business, it has developed much better skills in forecasting styles and sales. When the department stores pressurized one suit-maker, Kashiyama, to stop shipping to Aoyama, the discount retailer immediately retaliated by dumping Kashiyama inventory at cost - and by announcing its reasons in full-page newspaper ads. In a further attack on the industry's genteel rules, Aoyama recently committed the ultimate act of lese majeste: it opened a cut-rate shop in Tokyo's high-fashion Ginza district. Tokyo Steel, a minimlll only one-tenth the size of Nippon Steel, is challenging the giants in specialty markets Uke H-beams and hot coils. It has cut prices and gained market share both by using electric arc-furnace technology and by keeping its fixed costs low. Its defiance of traditional practice has paid off: during the past 15 years, it has doubled profits while reducing its workforce by more than 25 percent. Sega, growing at 30 percent a year, is no longer just a maker of video games, but a fully fledged entertainment provider more profitable than such industrial giants as Fujitsu and NEC. Refusing to buy its way into the US movie market, it opted instead for a strategy based on developing innovative new products, including advanced entertainment centers, and on forging alliances that position it to become a global information player. In a radical break with tradition, Sega brought in a full third of its senior management team from outside the company. Its president has also installed




an internal recruiting system that allows any employee openly to apply for - and move to - any job in the company. Mavericks like these are at work in virtually every sector of the Japanese economy. None seeks to replicate the business system or product strategy of established industry leaders. None moves the bulk of its goods through its industry's AT i 1 4 . u J J- ^ u 4 ^ ^ X T ^ o mavenck seeks long-entrenched distribution system. None belongs to a keiretsu. None is a member of ''^ replicate ttie busmess Keidanren, the blue-chip business lobby. system or product None has its headquarters in prestigious strategy of established and extremely pricey - downtown Tokyo. industry leaders None does the bulk of its managerial hiring from the first-tier universities. None offers its new hires the implicit promise of lifetime employment. And none bases its compensation primarily on seniority, rather than on performance.

Lessons for the West

What does all this mean for Western managers? Often what they need to succeed in Japan is not what they have been preparing themselves to do, but what they already do at home. Recently, a US electronics company proudly recruited a senior, very experienced Japanese executive from a large, established firm to head , its human resources department t^ . I - 1T i" Japan. The unexpected result: Young, talented Japanese , i 4 ^ j j ^ demoralization and departures engineers want no part among its young and most talented of companies with stifling, Japanese engineers. They had joined 1960s-style, "insider ^^^ company because they wanted to , , I. " t work in an informal, Silicon Valleywannabe" bureaucracies ,., . . ^n , . . , like environment. What they found, instead, was a stifiing, "insider wannabe" bureaucracy modeled along the extremely hierarchical lines of pre-1970 Japan. And they wanted no part of it. Western companies that aspire to thrive in Japan will want no part of it either. The mavericks point the way. Q

WaU Shill is a principal in McKinse/s Tokyo office. This is an edited version of an article that first appeared in the Wall Street Journal on November 1, 1993 and is reprinted here by permission. Copyright 1993 Dow Jones & Company, Inc. All rights reserved.