Etsuo Abe - The Origins of Japanese Industrial Power: Strategy, Institutions and the Development of Organisational Capability

THE ORIGINS OF
JAPANESE INDUSTRIAL
POWER

Strategy, Institutions and
the Development of
Organisational Capability

ETSUO ABE and ROBERT FITZGERALD

First published in 1995 by Frank Cass & Co. Ltd.

This edition published 2013 by Routledge
2 Park Square, Milton Park, Abingdon, Oxon 0X14 4RN
711 Third Avenue, New York, NY 10017

Copyright 1995 Frank Cass & Co. Ltd

British Library Cataloguing in Publication Data

Origins of Japanese Industrial Power: Strategy, Institutions and the Development of Organisational Capability. (Studies in Business History, ISSN 0959-2296)
I. Abe, Etsuo II. Fitzgerald, Robert III. Series
338.0952
ISBN 0-7146-4623-7 (cased)
ISBN 0-7146-4157-X (paper)

Library of Congress Cataloging in Publication Data

The origins of Japanese industrial power: strategy, institutions and the development of organisational capability / edited by Etsuo Abe and Robert Fitzgerald.
p. cm.

This group of studies first appeared in a special issue of Business history, v. 37, no. 2, April 1995 T.p. verso.
Includes bubliographical references.
ISBN 0-7146-4623-7 (cased) ISBN 0-7146-4157-X (paper)
1. Japan Economic policy 1945- 2. Industrial promotion Japan.
3. Production management Japan. 4. Industrial management Japan.
5. Japan Economic conditions 1945- I. Abe, Etsuo, 1949-
II. Fitzgerald, Robert.
HC462.9.069 1995
330.95204 dc20 94-38512
CIP

This group of studies first appeared in a Special Issue of Business History, VoI.XXXVII, No.2 (April 1995), [The Origins of Japanese Industrial Power: Strategy, Institutions and the Development of Organisational Capability].

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the publisher.

Japanese economic success has been built upon the establishment and development of key manufacturing sectors, and the perspectives of business history can especially reveal that complex interaction of companies, markets, business networks, and state which has over time created a globally competitive industrial system. Long-term economic growth was capped in the 1950s and 1960s by growth rates that were unprecedented in their scale and duration. Similarly, the process of industrial transformation accelerated in the years between 1918 and 1950, important developments finally coalescing during the post-war period into the so-termed Japanese industrial system. Debates over the timing of economic development in Japan are intertwined with debates on the contribution of a pre-industrial national culture to business success. The historical record suggests that the acquisition of organisational capabilities within Japanese manufacturers has been shaped by the timing of the country's industrialisation and by its consequent development needs. The nature of Japanese management and Japan's industrial system, although influenced by cultural attributes, was shaped by organisational and economic objectives attuned to the circumstances of the country's industrialisation, and competitive advantage followed from the unavoidably nationally specific process by which potential was ultimately matched by capability.

In pre-war Japan, large-scale business enterprises tended to become managerial enterprises, but around 1930 this transformation was still in a stage of transition. Managerial enterprises developed rapidly due to the militarisation of the economy during the Second World War, and, after 1945, following the dissolution of the zaibatsu by the occupying US forces. The purge of businessmen that had cooperated with the military, and tax and land reforms which affected the wealthiest, were other contributory factors. Economic growth after 1950 assisted the development of managerial enterprise, just as managerial enterprise accelerated economic growth by facilitating investment and the expansion of business capability. The majority of post-war Japan's most important executives were promoted from within their companies. They were already acquainted with their workforces, especially their engineers, and fully understood their capabilities. This knowledge and the support they enjoyed amongst their employees were critical to the strategic decision-making that guided the investments that brought rapid growth, and, with these organisational assets, they won the confidence and support of banks, business allies, and government. It was those managerial enterprises controlled by salaried managers promoted from within and the emergence of new entrepreneurial enterprises which led Japan's post-war economic growth.

The enterprise groups, formed after the Second World War, and horizontally linking a number of associated companies, are widely accepted as a notable characteristic of the Japanese Industrial Management System. The purpose of these groups, and therefore their particular contribution to industrial organisational capability, is rooted in the period of their development, the 1950s. Interlocking share ownership within the groups brought a sense of security, allowed managers to exercise control over their companies, and encouraged firms to plan in terms of long-term growth rather than short-term profits. Nevertheless, the objectives and advantages of inter-firm groupings altered over time, and these changes reflected developments in the Japanese economy and in the commercial and organisational needs of companies. This institutional arrangement has been a notable aspect of the Japanese industrial system, characteristically distinct from the Anglo-American economies and a contributor to competitive advantage and differential growth rates.

The Japanese keiretsu, specifically vertically linked firms, have attracted global attention, and there is continuing dispute over their purpose. They act as close, long-term business relationships between large corporations and a number of selected smaller firms. They have been seen as rational effective systems, especially suited to the circumstances of Japan's industrialisation, and as a factor in its economic success. On the other hand, they have been criticised as closed systems that exclude potential competitors. Keiretsu are generally divided into production keiretsu, financial keiretsu, and distribution keiretsu. As a pioneer of distribution keiretsu, Matsushita (Panasonic) grew in Japan by securing the outlet of its products at appropriate prices, and is now its nation's largest electronics manufacturer. Its distribution structure was founded in the 1930s, but the changes introduced in the 1950s finally brought it substantial commercial advantages, and encouraged rivals to form similar networks.