Global Business Cultural Analysis: Japan
|Type:||Compare and Contrast Essay|
|Topics:||Japanese Culture, Business Ethics, International Business|
Table of Contents
This paper intends to identify the impact of cultural differences between two nations participating in the international business. This discussion has revolved under the condition, while a US business has decided to start-up its operation in Japan. The contents of the paper have been segregated into four sections. In the first section, the researcher has demonstrated cultural dimensions of Japan using dimensions such as ethics, education, customs, language, religion, etc. The second section of the paper has identified how the cultural dimensions have been integrated by the Japanese while conducting business in their home nation. The major cultural differences between the US and Japan have been identified in the third section. In the last section of the report, the researcher has analyzed the probable implications for the US companies that have focused on diversifying their business in Japan.
Keywords: [Hofstede’s cultural model; cultural dimensions]
Major Elements and Dimensions of Culture
Japan has the third largest economy across the globe, which is responsible for bringing both rewards and challenges for the nation. The country has experienced huge growth in recent times due to several developments and improvements across various sectors (Ferraro & Briody, 2017). One of the key reasons behind such growth and success of the nation is its cultural dimensions. It has also been observed that Japan is a homogenous nation and the sense of collectivism is very strong among the people over there. The factors of self-awareness, working in groups and conformity are present in the Japanese culture. This is because, in Japan it has been noticed that the people consider isolation from a group to be a danger (Peltokorpi, 2008). Any individual, who makes oneself aloof from the group, is considered vindictive and harmful. In order to identify the major elements and dimensions of the Japanese culture, cultural dimensions such as religion, communication, ethics, manners, values and attitudes, social structures customs etc. have been taken into consideration.
The nations held together by a very strong cultural undercurrent that have controlled various areas of public life. The first dimension is communication and Japan’s homogeneity contributes to communication without language. People here often rely on posture, tone of voice and facial expression to understand what others feels. Moreover, they believe that non-verbal messages are more effective than the spoken words because words may convey different meanings. People in Japan, they do not openly insult or criticize others. Here, Non-verbal means of communication is so crucial that books have been published for the foreigners to help them interpret their signs of expressions. Besides this,
In this nation, staring into another person’s eyes, is considered highly disrespectful, predominantly those who are seniors because of their age and social status. While speaking to each other, most of the Japanese strives to hold an impassive expression. In addition to this, in crowded situations people tends to avoid eye contact in order to maintain their privacy. According to reports, saving face has been considered crucial in the society and the Japanese believe that rebuttal to someone’s request may lead to embarrassment and humiliation. In case the requests of people are not agreed to, they would either say, it is inconvenient or it is under consideration (Commisceo Global, 2017). As a result, it is important to understand the situation each time so as to appreciate people’s response.
The second dimension is language, Japanese is the dominant spoken language in the nation, which is also ranked among the top ten most spoken language in the world. Majority of the people in Japan use this language to speak to each other. Due to its rich and long literary history, Japanese is one of the most intensely studied languages in the world (Nakayama, 2015). There are various other languages used in Japan, such as Korean, spoken by a number of people in the nation (Kaplan and Baldauf, 2008). Languages such as Yaeyema, Miyako and Amami, are also used by people to communicate with each other. Besides this, many Japanese also use sign languages to communicate messages to the intended people (Tsujimura, 2013).
There are 2 major religions of Japan, i.e. Shinto and Buddhism. Shinto has been considered as the most ancient and native religion of the Japanese island. People of Japan worshiped different forms of nature such as trees. Shinto has been also considered to have numerous deities, however, there is no any supreme divinity. Shinto has very ancient roots in Japan when once it was believed that the people in the natural world possessed Kami, a divine spirit.
In Shinto there is no fixed moral precepts, philosophy or any sacred scriptures. However, various shrines across the nation have been often used as bases of power (Commisceo Global, 2017). Buddhism originated from China during the 6th Century and people in Japan also followed this religion, in addition to Shinto. From then onwards 2 religions have existed in Japan. Buddhism is also followed by 5% of the world’s population approximately.
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Legal regulation played a very significant role for Japanese managers when it comes to the enactment of business ethics. In Japan, it is considered that the legal professionals must possess highly advanced professional legal knowledge and need to possess strong legal ethics which is entirely based rich humanity as well as wide cultural knowledge. This enables them to play a dynamic role in numerous fields of the community (Chan, 2011).
Values and Attitudes
According to the Japanese mythology, gods exhibit human emotions, which includes both love and anger. According to the mythology, human behavior that establishes positive relations with people are highly rewarded (Dolan & Worden, 1994). Besides this, recognizing oneself with another, has also been highly valued. On the other hand, those actions that are harmful, rebellious or antisocial and harm others, are criticized. Upsetting behavior is punished in the myths by banishing the guilty. Japan is among those nations that strongly relies on social beliefs instead of supernatural sanctions and, thus give emphasis to the benefits of harmonization.
Children in Japan are provided with high human values so that they are able to recognize that they are a part of an interdependent society, which begins from their family and then extends to the society including their neighborhood, school, workplace and the community in which they exist. Cooperating with people in the community and participating in joint activities, both for official or unofficial purpose, has been considered as a symbolic statement for the people in Japan, which demands developing successful channels of communication and strives to strengthen interdependence among the group. Japanese find it more convenient in dealing with others by establishing personal relations. (T. Yamagishi & M. Yamagishi, 1994). Such relationships are generally created by using the social networks of any friend, colleague or relatives.
The nation is very much linked to its cultural and traditional heritage while continuing to be one of the lead players in manufacturing, technology as well as in its infrastructure. It has also managed to preserve its position in the international business (Commisceo Global, 2017). In Japan, behavioral aspects and manners are considered cruicial and people here greet each other by bowing, however, shaking hands in tends to be a very uncommon practice. Moreover, giving gifts or presents to others is considered highly ritualistic and meaningful in the nation on any occasion.
In Japan, people are very much concerned about their children and treat them as the centre of the family (Commisceo Global, 2017). Also, child rearing has been considered as an extremely significant role in the nation. Strong family bonds exists among the families within a community as well as between the children. In both urban and rural regions, there exists differences in composition of families, workforce inclusion as well as educational achievement. Besides this, there are social differences among the urban population between the ‘blue-collar’ working classes and the ‘white-collar’ salaried middle class (Commisceo Global, 2017).
The Japanese Ministry of Education has brought about new widespread reforms into its English education system as well as in university environments so as to remain competitive in the global market (Wilkinson, 2015). Government has provided enough financial assistance to the Soka University to develop numerous innovative and successful programs that would help the students to reach high levels of expertise in English and gain cultural knowledge as well (Wilkinson, 2015). Besides this, the increased focus on content and language prospectuses in the nation has led to a spectacular increase in the number of universities that have begun offering such educational programs. Moreover, the Ministry of Education of Japan is much protective of the nation’s great works of art, such as architecture, sculptures and paintings as well (Commisceo Global, 2017).
Evaluation of the dimensions integrated in Japanese business
In this section, it will be discussed how the Japanese integrate the cultural dimensions discussed in the previous section.
Communication- Based on the empirical studies, Ito (2005) argued that in most of the cases, Japanese prefer non-verbal communication over the verbal one in business places. Japanese people consider verbal communication is mostly blunt to express themselves. In addition, Japanese people also avoid conveying negative reactions verbally in the work environment. While discussing about the business communication, Triandis (1989) cited that in majority of the cases, silence of the managers indicate lack of attention or lack of confidence. In contrary to that Japanese managers maintain silence during a course of action. Thus, Tai (2003) cited that silence of Japanese managers often represents that they are thinking deeply about a particular issue. During the verbal communication process, Japanese managers and employees share too much detailed information about the context of the issue (Heaton, 1999). Japanese people do not prefer interruption during a communication process. In other words, it can be stated that Japanese managers focus on listening and thereby gathering relevant information, rather than expressing their own opinions during a business meetings.
Language- In the opinion of Ohnuki‐Tierney (1990), language barriers significantly affects the business performance of an organisation. Over the times, Japanese people have modified the English language while using it for their business purpose. The study of Wiersema and Bird (1993) has identified that the people in Japan have revised the overseas words to their own by means of integrating loan words from other languages, for example German and French. They also use abbreviations of the English words in the business places. Furthermore, the Japanese language also contains standard expressions while translating it from English language. Considering the written language such as business report, Japanese people provide more importance on context, rather than the grammatical issues or the appropriate choice of the English words. Kawabata, Crick and Hamaguchi (2010) added that workers of the Japanese organisations pronounce English words by following their spellings. Although, English is being used by the Japanese as the official language in the corporates, majority of the people use Japanese (Nihongo) in the workplace communication (T. Yamagishi & M. Yamagishi, 1994). As, 99% of the Japanese people use this language, there is no significant language gap found in the local Japanese organisations.
Religion- Although, most of the local Japanese people do not identify themselves as the religious, it is reflected through their etiquette (Baron & af Segerstad, 2010). In this regards, Ohnuki‐Tierney (1990) cited that etiquette represents the way people deal with one another and also the way they project themselves in the workplaces. For instance, the locals who believe in the Shintoism, tend to purify and bless the new space before beginning the work. In order to ensure the business deals, Japanese people offer gifts to the other parties (Sharifi & Murayama, 2014). Due to the influence of religion, the Japanese regularly go for food and drinks after the completion of their work. The influence of Buddhism and Confucianism has directly influenced the work culture of the Japanese organisations. Due to the impacts of these two religions, Japanese often demonstrate thankfulness to their colleagues for even a small support. The way Japanese address their supervisors is also influenced by the concerned religion.
Ethics- According to Kawabata, Crick and Hamaguchi (2010), culture of a particular country plays a vital role in guiding its business ethics. Japanese have successfully integrated ethics in their corporate culture. The local Japanese employers do not ask the people to work beyond the normal work hours (Baron & af Segerstad, 2010). In addition, most of the Japanese strictly follow the guidelines related work situations and leisure time. Based on the studies, it has been identified that most of the Japanese are extremely loyal towards their employers (Gierlach, Belsher, & Beutler, 2010). In order to maintain ethics in the business, Japanese managers have found to be less involved in taking the bribes. On the other hand, strong work ethics is being demonstrated by the locals as they strive for the ultimate perfection. Therefore, it can be inferred that ethics have strictly been maintained in the Japanese businesses by both the employees and the employers.
Transparency- In the opinion of Chesbrough (2010), transparency is considered as one of the most important cross-cultural dimensions. Failure to integrate transparency in the businesses have resulted in the failure of large organisations. In spite of string work ethics, Japanese have failed to incorporate high transparency level in their businesses. In this context, Sahota (2009) cited that secrecy and hierarchy are the major factors affecting the local Japanese to ensure transparency in the business. Although, the Japanese government has strengthened the corporate governance system of the Japanese organisations, lack of transparency of the Japanese managers have emerged as one of the major factors responsible for the corporate scams in Japan. Lack of transparency in the finances and operations have been evident from the Japanese business over the years.
Values- Japanese have been seen to demonstrate strong cultural values in the businesses. In this context, Kawabata, Crick and Hamaguchi (2010) cited that although, a significant differences have been recognized among the Japanese business people, they possess almost similar cultural values. Most of the local people in Japan provide immense importance on the relations. In addition, both the managers and the employees of Japan provide immense importance on the values they offer to their customers. Chesbrough (2010) cited that the concepts of value addition has encouraged the Japanese people to concentrate on the products and services offered to the customers.
Attitude- Japanese employees demonstrate positive attitudes towards their employers (Gierlach, Belsher, & Beutler, 2010). In this regards, Sahota (2009) cited that positive attitude of the people is being directly reflected in their organizational performance. On the other hand, kindness is another important parameters that is being shown in the attitudes of the Japanese people. Japanese locals do not hesitate to work hard for the achieving the organizational objectives. They are also respectful to their coworkers.
Social structure- Studies have indicated that social hierarchy has remained extremely prominent in the Japanese culture. The social structure has also significantly impacted the business of the country (Vo & Stanton, 2011). In most of the cases, the people from the royal and business classes have seen to set up the business. On the other hand, middle class people work on the salary basis to the different organisations. Thus, it can be stated that social structure has affected the income level of the Japanese people in an effective way.
Organizations- Like the social structure, Japanese organisations or institutions have also been developed based on hierarchy. Thus, the local people of Japan maintain this structure while taking any business decisions. In this regards, Kawabata, Crick and Hamaguchi (2010) cited that due to the organizational hierarchy, Japanese managers take prolonged time in making the decisions.
Comparison with the US culture and business
In order to conduct the international business in an effective way, it is important for the firms to understand the cultural differences between the home and the host country. Hence, in the context of this paper, it is relevant to demonstrate the differences between the US culture and business with that of Japanese culture and business.
While discussing about the differences between the US and the Japanese employees, Okazaki, Mueller and Taylor (2010) identified the factor directness of communication. It has been found that the US employees do not hesitate to express their feelings during communication with the supervisor. The study of Kawabata, Crick and Hamaguchi (2010) revealed that indirect tone of the employees can be considered as unprepared or unorganized in the US. In contrary to that, the Japanese consider the direct communication approach of the employees as rude. While conducting business in Japan, the US companies must be aware of the fact that Japanese people maintain delicacy while expressing their opinion. Most importantly, Japanese employees prioritize the non-verbal communication during the professional communication (Vo & Stanton, 2011). English is considered as the sole medium of business communication in US. Significant difference has been found in the English used by the US people to the English used by Japanese in the workplaces (Vo & Stanton, 2011).
Unlike Japan, US is a heterogeneous society. Therefore, people from different religions such as Christians, Muslims, Hindus and others exist in the US workplace. According to Kawabata, Crick and Hamaguchi (2010), religion plays more crucial role in US society than the Japanese society. However, in this regards, Sharifi & Murayama (2014) argued that diversification of religion contributes integrity to the US people. In contrary to the Japanese people, USA is inhabited by the different people who share the similar things. Significant differences lie between the values shared by the Japanese and US people. For instance, Japanese culture is more inclined towards community. In contrast, US people value their freedom and individual capabilities (Kawabata, Crick & Hamaguchi, 2010).
Due to the differences of values between US and Japanese people, their attitude also varies significantly. US people provide lesser importance to their families compared to that of the Japanese. However, in most of the cases, it has been found that the US people are being benefited in the professional life due to their independent attitude. Studies have indicated that both in US culture work ethics is less important than that of the Japanese culture (Baron & af Segerstad, 2010). However, Sharifi and Murayama (2014) argued that in most of the cases, US organizations prioritize on the end results and compromise with the ethics and compromise with the ethics and transparency. Working more than the work hour is a common issue in the US organizations unlike to that of the Japanese workplaces. However, US society and organizations are less hierarchical than that of the Japanese. It has fastened the decision –making process in the US companies.
According to Na, Grossmann, Varnum, Kitayama, Gonzalez and Nisbett (2010), speed versus consistency can be considered as one of the most crucial distinguishing factors between the US and Japanese culture. Based on the evidence, it has been found that the managers of the US companies make quick decision. Supporting this, Baron and af Segerstad (2010) cited that as the US companies rely on the information available for the particular time, they consume lesser amount of time in making decisions. In contrast, the decision making process of Japanese managers is delayed, as they follow step-by-step approach (Gierlach, Belsher, & Beutler, 2010). The Japanese managers believe that slow decision-making process results in lower percentage of errors. However, in this regards, Harada, Takeshita, Ahmed, Chen, Petrovitch, Ross and Masaki (2012) argued that in most of the cases, lack of leadership of Japanese company management is the major factor that stimulates delayed decision-making.
Studies have identified that the US companies provide more importance on the bottom-line performance such as Return on Investment (ROI) (De Mooij & Hofstede, 2010). The process, by which it has been assessed, has not been given the importance. In most of the cases, the managers of the US firms provide lesser importance on developing the processes. In contrast, although, the managers of the Japanese firms provide importance on the end result, they emphasize on the particular process that can help them to achieve the desired financial indicator. For instance, the Japanese managers consider the operational process for the purpose of reducing its cost. The research of Chesbrough (2010) identified that the US businesses are more risk takers. The managers of the US businesses can accept a particular project with a success rate of 50-70%. In contrast, the managers of the Japanese businesses are more risk adverse. In most of the cases, the Japanese managers accept a particular project, if they are 100% sure about its success rate.
The managers and the employees of the US companies are not intended to organize or participate in number of meetings (Sahota, 2009). However, the US managers prioritize on the quality of the meetings, rather than its quantity. On the other hand, the Japanese businesses provide high value on the number of meetings during the tenure of a particular project. The managers proceed to a particular project process, if it is being approved by majority of the staff. Lee, Yoon and Park (2009) cited that the managers of the US organizations prefer to communicate with the co-workers through emails or over the phones. Through analysis of the Japanese businesses, it has been found that they respect face-to-face communication for making the business relationships. A significant amount of differences has been found in the working styles between the US and Japanese firms. In the US companies, work from home is quite common. Each of the employees has been provided with separate cubicles for protecting one’s confidentiality (Sharifi & Murayama, 2014). In contrast, the Japanese firms work only in the regular working hours. Work from home is not permitted over there. A school-like work environment is maintained in Japanese companies. Hence, no cubicle is provided to the Japanese employees.
In the Japanese business, workers are expected to offer suggestions to the management for improving their personal as well as overall productivity (Gierlach, Belsher, & Beutler, 2010). It enables the Japanese businesses to meet the objective of continuous improvement. Although, in US businesses, the employees offer suggestions to the management, it is considered as a threat rather than a constructive one. In this regards, Lee, Yoon and Park (2009) cited that US employees who constantly recommend for changes are considered as trouble makers to the management. Discussing about the differences of the human resource management in Japanese and US organizations, Chesbrough (2010) referred that managers from the Japanese firms provide immense importance on their human resources. Supporting this, Kawabata, Crick and Hamaguchi (2010) also cited that human resource policies in Japanese firms are developed to motivate the employees. In other words, it can be stated that in Japan, the human resources are considered as the major instrument to achieve competitive advantage over the rival. However, based on the studies, Gierlach, Belsher, & Beutler (2010) mentioned that employment in US companies are treated as a revolving door. During the period of economic slowdown, US mangers consider laying off the staff as the first and most initiative to cope up with the problem. According to Kawabata, Crick and Hamaguchi (2010), in Japanese organizations, the managers emphasize more on lead time and quality standard. On the other hand, in US businesses, the managers concentrate on cost variances.
With the help of an empirical research, Vo & Stanton (2011) mentioned that in the case of the US companies, employee retention has become a major problem, as most of the employees tend to change their organizations frequently. However, it has been observed that the Japanese employees do not change their organizations so frequently as the US ones. The monetary rewards offered by the US companies encourage them to stay with the same companies, in most of the cases. In Japanese companies, promotions are often been provided on the seniority basis. In contrary to that, employees are promoted based on the basis of merit in US. In the case of the US firms, family and personal time are prioritized. In this context, Na et al. (2010) mentioned that work-life balance is considered as must for the US employees. Although, they socialize outside the work, socialization is not conducted as a group. In contrary to that, Japanese provide more importance on the work life (Gierlach, Belsher, & Beutler, 2010). Work is treated as center of life for the Japanese employees.
For analyzing the cultural differences between the US and Japanese firms, it is important to reflect on the dimensions mentioned by Hofstede. For instance, the score of power distance in Japan is 54 and the same for the US is 40 (Geert Hofstede, 2017). It implies that the Japanese maintain hierarchical position more specifically than the US companies. In this context, Block & Keller (2009) cited that most of the foreign firms such as the US companies may find it extremely troublesome to conduct business in Japan due to its hierarchical nature. Moreover, it can be inferred that due to the hierarchical organizational structure of the Japanese firms, decision-making process consumes extra time than that of the US firms.
The scores of individualism for Japan and the US are 46 and 91 respectively (Geert Hofstede, 2017). Based on this score, it can be stated that Japanese culture is a collectivist one. In contrast, the US companies follow the individualistic culture. In the US, people tend to find satisfaction based on their own accomplishments. Elaborating on this, Vo & Stanton (2011) added that in the US, the employees and the managers tend to follow their own aspirations. On the other hand, in Japanese organizations, the employees and managers tend to derive satisfaction and pride among the group (Gierlach, Belsher, & Beutler, 2010). Company loyalty is being valued in the case of Japanese employees. In masculinity, the score of Japan and the US is shown as 95 and 62 respectively (Geert Hofstede, 2017). A high score of masculinity indicates that Japanese society is driven by achievement, competition and success. On the other hand, it has been found that in the US, assessment systems are often dictated by the precise target setting.
Uncertainty avoidance score of 92 for Japan, in contrast with 46 for the US, represents that Japanese organizations avoid uncertainties (Geert Hofstede, 2017). In contrast, the US firms intend to take risks for enhancing their business performance. In this context, Block and Keller (2009) added that Japanese organizations do not spend huge money in contingency planning. In contrary to that, as the US organizations get involved in the risky projects, it can be stated that a significant amount of cost is spent in the contingency planning. From the Hofstede’s model, the long-term orientation score has been provided 88 for Japan and 26 for the US (Geert Hofstede, 2017). It indicates that the US firms focus on the short-term goals. In contrast, most of the Japanese organizations prioritize the long-term goals. Identifying the differences between the US and Japanese businesses from the perspective of Hofstede’s model, De Mooij and Hofstede (2011) stated that the Japanese firms may not concentrate on deriving healthy returns for the shareholders on each of the quarters. Rather, the Japanese companies emphasize on ensuring growth on long-term perspective. In the last dimension, indulgence, the score of Japan and US are 42 and 68 correspondingly (Geert Hofstede, 2017). Hence, it can be inferred that the US companies provide more importance on the leisure hours than the Japanese firms.
Implications for the US businesses
Business possibilities in Japan
Japan is assumed as the fourth largest buyer of the American products and the country is also considered as the technology powerhouse. The US State economic agencies are aware of the foreign investment that is made within the nation. Japan is considered as the 12 member country of the Trans-Partnership Partnership (TPP). The country has been able to contribute 40% of the world’s GDP (Chesbrough, 2010). Moreover, the country is also assumed as the third largest economy of the realm after the US and China. The researchers have highlighted the top 5 US exports to Japan in 2014 in different industries, such as, engines, civilian aircraft, equipment and parts, medicinal equipment, meat and poultry and pharmaceutical operations (Sharifi & Murayama, 2014). The research has also indicated that Japanese investment in the US is around $45 billion. The alliance formed between the US and Japan is assumed to be an important factor for international trade. The close relationship of Japan with the US is evident from the US-Japan alliance (Ojala, 2009). Both the countries have faced rising strategic as well as economic challenge. In fact, Chesbrough (2010) added that the organizations also face cultural challenges, because Japan is a country with formal and informal communication rules and strong anticipations on the product quality.
The companies in Japan believe in innovation, which plays an important role in raising the productivity. In 2005, there was the lowest productivity rate in Japan among the industrialized nations (Chesbrough, 2010). Based on the research, it is evident that the business and the government sources have spent more than US$ 284 billion on the research and development in order to identify the business opportunities across the Japan (Sharifi & Murayama, 2014). The research and development in the US were sourced by the business enterprises. The basic plan of Japan is to maintain various research funding levels and to build up sustainable industry-academia and government collaboration (Sahota, 2009). Moreover, Japan believes to increase its manufacturing competitiveness by investing on the research and development and by strengthening the collaboration and partnership among industry, academia and government. The country has also ensured enhanced labor mobility, attracting talent from the overseas and foreign direct investment. According to the Japanese government, the relationship of the country with the US has an impact on the international trade that takes place within the nations (Chesbrough, 2010).
The economy of Japan is believed to be steadily growing over the years. The GDP of the nation in 2007 equated to be US $4.38 trillion, which is assumed to be around 2.1%, i.e., higher than 2006 (Chesbrough, 2010). The US-Japan economic relations have got strengthened over the years and the US imports from Japan are focused within three main categories. Around three quarters of the imports involve passenger cars and vehicular parts, machineries and equipment and computer parts. The Japanese investors are considered to be major private foreign holders of the US Treasury securities that finance the US national debt. In fact, the two countries have prioritized their bilateral economic relationship, which has strengthened the import and export of goods and services. Along with the trading of the goods and services, portfolio investments, FDI between the residents of the US and Japan also strengthen this economic relationship (Koellinger & Roy Thurik, 2012). There is a number of factors that needs to be considered by the Japanese companies while carrying out their business in the US. They need to hire reputable agent, dealing with the business contracts through frequent personal visits. Due to the differences in the management appraoch, the American companies are expected to be well accustomed to the management style that is followed in Japan. The business contracts in Japan attach high degree of importance to the personal relationships. The US companies are assumed to be selective in choosing the Japanese partner (Koellinger & Roy Thurik, 2012).
According to Kumayama (1991) there are certain factors that are to be taken into consideration by the Americans when they plan to set up their business in Japan and there are three most important factors that are to be taken within consideration such as the business suits, gift exchange and business card exchange. Japanese businessmen have the tendency to wear dark suits either in navy blue, grey or brown as these colors are considered acceptable for the business meetings (Kumayama, 1991). There is a common practice among Japanese that involves exchange of business cards which is considered as a kind gesture. This in turn is believed to strengthen the relationships among the Japanese. Furthermore, there are different strategies followed by the businessmen in Japan while carrying business card out of the business unit. One of the strategies is to keep the business card in small pocket within the jacket and another strategy is to keep the business card in small wallets (Kumayama, 1991). Moreover, it is an important factor that Japanese businessmen are expected to exchange the business cards by standing up and they are likely to use both the hands rather than one hand. As per Chesbrough (2010) Bowing of the business partners symbolizes politeness and courtesy and it motivates them to have further discussion about the business prospects.
According to Koellinger & Roy Thurik (2012) there are a number of companies such as McDonald’s, Coca-Cola and Microsoft that has opened market in Japan and the operations in Japan are assumed to be profitable in comparison to the US operations. Moreover, large number of individuals in Japan are considered to be computer savvy ((Koellinger & Roy Thurik, 2012). The Japanese individuals are known to use the technology in greater extent and the American companies are known to enter the Japanese market with appropriate combination of products and the economy in Japan is considered to be highly diversified with the well-educated workforce to deliver high quality performance across the globe (Chesbrough, 2010). The real estate prices and the sliding stock are part of the Japanese asset price bubble of the late 1980s. However, the country has recovered from this challenge in the later years with the reduction in the inflation rates across the globe.
The studies have revealed that the economy of Japan has flourished in the e-commerce sector with large number of customers purchasing the products online (Chesbrough, 2010). Thus, many of the e-commerce companies of the US have entered the Japanese market in order to increase its customer base and to increase its profit. In fact, the Japanese government is encouraging the foreigners to enter the Japanese market in order to enhance the growth rate of the economy. Japanese culture is also developed in such a way that it attracted the companies in the US market to trade with Japanese enterprises across the globe (Chesbrough, 2010).
SWOT Analysis of Japan as a business possibility
The Japanese market has proved to be the most cost-effective for many of the designer brands such as Christian Dior, Louis Vuitton, and Prada. The market has accounted for around 2/3rd of the companies’ global profits by opening large stores in Tokyo. Furthermore, the Japanese market has the tendency to enhance supplier loyalty and the customers have the scope to evaluate the quality of the products before the actual purchase (Koellinger & Roy Thurik, 2012). There are other strengths that have been highlighted by the researchers such as the huge open economy, which enables the foreign companies to enter easily into the Japanese market (Amit & Zott, 2012). As per the data collected from the International Monetary Fund website, the per capita GDP of the nation was around $37,519, which is considered to be the highest in 2014. It is assumed that the country will have a GDP per capita of around $38,490 (Sharifi & Murayama, 2014).
The country has also invested a huge amount on the research and development, which is around 3.47% of GDP. Although the economy has remained sluggish over the years, it comprises of a vast market and the government has implemented a number of far reaching reforms. The GDP of the nation grew at an annual rate of 6.7% in the first quarter of 2014, which implies that the economy would grow further in the near future (Sharifi & Murayama, 2014). Moreover, the research has also highlighted that there are large pool of individuals living in Japan, who have the potentiality to spend money and the customers mostly focus on style, quality, reliability and a sense of tradition. The Japanese consumers are known to possess high disposable income that they are ready to spend on the consumer goods (Harada & Nguyen, 2011). Setting up a new business in Japan is assumed to be beneficial because of the intellectual property rights that provides strong legal protection. Moreover, the country has worked in order to improve the IP registration procedures in the recent years involving the revisions to the Japanese law so as to make the patent and trademark registrations easier.
There are a number of challenges that is faced by the US companies that plan to set up their businesses in Japan and they are expected to adopt a number of strategies so as to enhance the overall growth of them. There is low tolerance of uncertainty in Japan and the businesses are forced to follow a number of rules and regulations (Sharifi & Murayama, 2014). The Japanese individuals are concerned about the business etiquette that is applicable every aspect of the society and is prevalent in the ordinary situations. A strong hierarchical system prevails in Japan with the responsibility and authority being provided based on the age, experience and status (Lee, Yoon, & Park, 2009). Furthermore, the country values sentiments of collectivism and it emphasizes on loyalty towards a particular group. This is contradictory to the business principles of the Americans, which depends on individualism. This indicates the fact that huge cultural differences exist when running businesses in Japan, which, in turn, leads to conflicts among the individuals. The working pattern of different individuals varies on the competencies of the two nationals (Sharifi & Murayama, 2014). There are certain flaws identified while doing business in Japan that is the Americans feel uncomfortable in sharing their views with Japanese. It is often the case that the business policies that are acceptable by the Americans are often not approved by the Japanese which in turn leads to conflicts (Kumayama, 1991).
Japan comprises of around 65% of Asia’s GDP with large opportunities to generate revenues and earnings. The American companies in the areas of high technology are expected to set up their businesses in Japan, because many of the strong competitors have their headquarters in Japan (Lee, Yoon, & Park, 2009). The American companies had invested in Japan in the field of manufacturing, which, in turn, helped the company to be closer to its customers. Initially, the American companies had brought the semi-finished products in Japan and then these products reached the finishing stage and were easily distributed to the consumer markets (Aron et al., 2012). There are a number of American companies that have been able to set up their research and development centers in Japan such as, Procter and Gamble, Eli Lily, etc., which increased the opportunities for the companies to grow further (Lee, Yoon, & Park, 2009). Moreover, the studies have revealed that the American companies have also been benefitted from the changes that have been made in the large-scale retail store law, which attracted other companies to enter into the Japanese market to run their business successfully.
Some of the threats that have been identified by the researcher involve the varying demands of the local customers of Japan, which differs from that of the Americans. With the huge size of Japan’s economy, substantial investments are to be made and the companies are known to face inherent risk factors. The local companies in Japan pose threat to the American companies such as eBay has lost in Japan due to the bargaining power of the local companies (Aron et al., 2012). The Japanese companies have the tendency to develop strategies to compete with the foreign competitors rather than welcome them. The unique business culture and the non-western political ideologies in Japan are considered to be other threats, which pressurizes the American companies to change their management styles so as to sustain their business in Japan (Aron et al., 2012). The study has revealed that the companies are expected to invest a great deal to maintain corporate culture as a means of dealing with the dampening effects of the domestic business culture.
FDI Analysis of the American companies entering Japan
Figure 1: Net FDI Inflow in Japan over the years (% of GDP)
(Source: The World Bank, 2017)
Japan is considered as a significant destination for the US Foreign Direct Investment and the Government of Japan stimulates inward FDI, and has organized formal agendas to attract them. However, the study has revealed that the inward FDI acquired by Japan has faced a number of drawbacks as compared to that of the US (Aron et al., 2012). The inward investments are those offered by the Ministry of Finance in Japan. FDI in Japan is growing gradually and the share of the Japanese affiliated in the foreign firms, especially in the service sector will reach almost equivalent to that of the US. The determinants of the inward FDI penetration are assumed to be very different in case of the industrial and the service sector (Carney, 2011).
Carney (2011) argued that in Japan, the policy framework that is used for the regulation of FDI was established on the basis of two laws that were enacted during the US Occupation and also continued in force with minor modifications. The Foreign Investment Law of 1950 had regulated the procurement of stocks as well as the proprietary interests in Japan that included validation of the technological assistance longer than 1 year (Sharifi & Murayama, 2014). The Foreign Exchange and Foreign Trade Control Law (FECL) of 1949 was administered on the basis of the international transactions apart from the FIL framework and the transactions were forbidden without government approval. During the phase when FIL was in effect the Japanese companies had the competencies to act on their preferences. For instance, the American multinational Coca-Cola was permitted to set up its Japanese franchise in 1956 in opposition to the small Japanese fruit juice bottlers (Sharifi & Murayama, 2014).
As per Lee, Yoon, & Park (2009) the Japanese policies related to FDI was based on close government industry cooperation which has made a significant cooperation to fostering Japan’s high technology as well as other manufacturing industries. During the early years of capital liberalization in Japan, the government lists of industries within which the FDI would be approved. The number of liberalized industries were considered to be limited and it involved foreign MNCs (Lee, Yoon, & Park, 2009). The significant liberalization steps were followed in 1970s when the US automobile manufacturers were allowed to acquire certain amount of stakes of the local automakers in Japan. The foreigners were allowed to acquire the existing automakers in Japan in case the company agrees for the takeover. However, the Japanese government have substantial power with them that helps them to delay the entrance of the multinational organizations that they have considered as threatening during the 1970s (Sharifi & Murayama, 2014). In 1980s the Japanese government had abolished the FIL and incorporated residual control with FECL. Under this law, the MNCs were expected to notify the Japanese government about their investment plans within the country. The US FDI in Japan had increased in the later period with the final stages of liberalization and Japan is considered to be among the top five host countries for the US FDI (Sharifi & Murayama, 2014). The renewed interest of the Abe Government in appealing the FDI is assumed to be one of the component of the government’s drive to rejuvenate the Japanese economy. The government has also made significant effort in order to restore Japan to a sustainable growth path based on its “Three Arrows” economic program that combines the fiscal policy, expansionary monetary policy and the regulatory and structural reform (Sharifi & Murayama, 2014). Japan had participated in Trans-Pacific Partnership (TPP) which is assumed to be a high standard free trade agreement currently under the negotiation of Japan, the US and ten other countries.
It is believed that the initiatives taken by the Japanese government would attract more FDI in future with the commitment of the government to implement policies and also develop the climate for foreign investment. The stock of FDI in Japan was 3.4% at the end of 2012 in comparison to 30.6% on an average for Organization for Economic Cooperation and Development (OECD) member countries. Sharifi & Murayama (2014) have discussed some of the important laws affecting foreign investment in Japan such as the Companies Act, the Foreign Exchange and Foreign Trade Act and the Financial Instruments and Exchange Act. Moreover, under a specific law passed in the year 2013, Japan was about to set up new “National Strategic Special Zones” (NSSZ) so as to undertake the selected measures on deregulation that are envisioned to entice fresh investment as well as to increase the regional growth (Sharifi & Murayama, 2014). There were two of the leading agencies in Japan such as the Japan External Trade Organization (JETRO) and Ministry of Economy, Trade and Industry (METI) which were responsible for taking care of the foreign firms which were interested in investing in Japan (Aron et al., 2012). These agencies provide information and support to the foreign companies so that they are able to adopt suitable strategies for the successful entry in the Japanese market. The support involves timely market intelligence as well as extensive business development in order to encourage new business between Japan and foreign countries (Aron et al., 2012).
During the early phase of the liberalization, the Japanese government had indicated a list of industries for the FDI approval. The foreigners were permitted to acquire the existing Japanese companies, in case the target companies decides to the takeover (Aron et al., 2012). The US FDI in Japan had reached the final stages of liberalization with the investments made in the manufacturing, chemical and pharmaceutical sectors. Despite the increasing trends in FDI, some of the researchers have pointed out the fact that the overall participation of the foreign companies in Japan remained low due to the sharp appreciation in Yen. On the other hand, the American companies had trouble in recruiting the competent Japanese employees because of the cultural differences.
As per Block & Keller (2009) the government policies of Japan and the American corporate strategies proceeded through different stages and in atleast three of these stages, the US firm had significant impact on the growth of the local economy. Despite the increasing restrictions on their Japanese affiliates, the US direct investors such as GM and Ford have contributed to the development of the Japanese economy in different ways (Aron et al., 2012).
The report highlighted on the key cultural dimensions such as communication, language, religion, ethics, values and attitude, social structure custom and education in the context of both Japan and US. In order to distinguish the cross-cultural dimensions between US and Japan, Hofstede’s cultural model has been included in the report. Based on this discussion it has been found that in the US, the managers and employees empathize on direct communication; in contrast, Japanese managers and staff majorly maintain non-verbal communication. In addition, due to the hierarchical organizational structure, the decision-making process in Japanese firms consumes more time, compared to that of US firms. In the US organizations, bottom-line performance has been provided with more importance. In contrary to that, Japanese businesses focuses on long-term growth. Moreover, Japanese firms are less flexible than the US firms.
This study indicates that Japan has proved to be one of the leading destinations for the American companies to open their businesses, as Japan had invested in different sectors such as the manufacturing and the service sectors, which contributed to the growth of the nation. The SWOT Analysis has highlighted the strengths and weaknesses of doing business in Japan, which helps the entrepreneurs to make an informed decisions related to the fact, regarding whether Japan proves to be a country to undertake business venture or not. Finally, the FDI analysis has also focused upon the different sectors in Japan, where the investments have been made, and the way through which inward FDI has contributed to the growth rate of GDP in Japan. The fact of the US direct investment in Japan challenges the different common interpretations of the linkage between growing Japanese economy and FDI. The contributions made by GM, Ford and other American multinationals in Japan indicate that FDI has been beneficial for the growth of the local economy.
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