Business Systems in China and Japan - Essay Example

?Business Systems in China and Japan Introduction In China was announced the second largest economy in the world after the U.S, overtaking Japan as the second world’s largest economy (Yiping and Kunyu, 2011). Previously, Japan was the roaring nation in Asia but the last twenty or so years have seen a decline in this status which has consequently reduced the global influence Japan once had in the global economic markets. According to Yiping and Kunyu (2011), China is the world’s most populated country with a total population estimated to be over 1.3 billion people as of December 2011 and a growth rate believed to be above 10% per annum. The most alarming fact is that China is implementing similar strategies employed by Japan in the 1970s that led to its rise as Asia’s largest economy and second to the US in the global market (Yiping and Kunyu, 2011). The similarity between the political systems in the countries is that both are state capitalist countries; a system which incorporates both free enterprise and government control to generate rapid or unmatched development and growth of their economies as well as the industrial sector. This system was used in Japan to instigate rapid economic growth and development but later resulted in huge economic dangers for the country. The system that brought Japan to proximity to the world’s largest economy also almost led its economy into turmoil. Hence, many may ask themselves, is China on the right path with the use of a business or market system that once proved a failure and a danger in its rival country Japan? Can the same fate that took Japan come China’s way? Japan instigated the capitalist form of governance in Asia during the 1950s and 1970s when it produced similar trends in economic growth and development as that produced by China in the current economic market (Yiping and Kunyu, 2011). This system saw industrious bureaucrats allocate resources to the sectors of the economy of their choice by selecting their favourite industries and ensuring that they get maximum funding from local banks. These banks were not government owned but the government had power in controlling the lending practices of the banks, thus they had the ability to determine which projects and industries will be funded or injected with huge sums of cash to maintain its production. Huge savings domestically were forcefully invested in these industries. The system enabled Japan to generate large cash surpluses due to export promotion instead of domestic consumption leading to Japan being accused of intentionally lowering the value of the yen so that its exports could be competitive in the global market. This period did not only see Japan’s capitalism produce enormous development and economic growth in the country but it also promoted the emergence of new industries that are globally competitive such as semiconductor and steel industries. This success led to some advocates from the US and other nations relishing the business system of Japan to an extent of some suggesting the system be implemented in nations such as the US so as to emulate Japan’s economic growth and development. Apparently, China has taken the same path as that which Japan took during its brighter economic days. Japan’s crisis began with the increase in oil prices that had a considerable effect on the Japan’s critical manufacturing industries. This had adverse financial impacts on Japan’s economic system. Japan was quick to notice this trend and instead, changed its development and growth strategies from manufacturing based industries to production based on knowledge i.e. the service industry. The service industry accounts for about 65% of employees in Japan whereas the same is only but 26% in China, indicating that China is more dependent on manufacturing industry than the service industry. The government of China controls the lending practices via a banking system that is state-owned and directs the funds to pillar industries, mostly steel and automobile manufacturing industries. Through provision of special financial support, bureaucrats have successfully helped develop new industrial plants, for instance the green energy. Furthermore, China has adopted a system that Japan was accused of in the 1970s (Jianwu and Kuijs, 2007); a system that artificially keeps the currency of the country low so as to maintain the competitiveness of its products in the global market. In China, people save rather than spend, and as a result, growth and development of the economy is mainly driven by investments. While world super power economies are struggling with creation of employment and maintaining their competitive advantages in the global market, China’s state capitalism has led it to direct its investments in future industries as well as acquiring stocks of natural resources worldwide. The implementation here is that Western and countries in the euro zone should implement this Chinese business systems or strategies in order to maintain their competitive advantage in the future. Other countries, for instance South Korea tried to adopt the Japanese business system and the result was similar to that of Japan. At first, there was rapid growth and development due to the emergence of globally competitive industries such as the ship building industry. But the 1997 Asian financial crisis resulted in a fall in this state capitalist system. The situation in Japan and South Korea can be referred to as the ‘bubble,’ where Jianwu and Kuijs (2007) describe as the lending practices of banks were influenced by the government as well as historical relations or connections between the lending party and the industry where firms could excessively invest in industrial capacities beyond their norms. A suitable example is the collapse of the Daewoo in 1999; a car factory that built factory after factory for car consumers that did not exist due to the huge investments and constant injection of funds by the state. In essence, these Asian systems brought about some positive growth and developments in their economies but also dug their own future grave. What Japan and South Korea were doing was that their states were altering the economic rules to the extent that investment was assumed to have no kind of risks and as a result, resources were largely misallocated which were eventually corrected but at massive costs. Differences in Economic Policies of China and Japan Background Japan and China share a rich history between them. Both nations have established an excellent sense of national identity as well as rich cultures; they share similar values and religions which have hugely influenced a host of practices in the two countries. On the other hand, recent history of the two nations has resulted in the two to take different paths into modern civilization. A principal factor in this difference is the different evolution of economic policies in the countries. China is among the oldest countries of civilization with the existence of the Xia dynasty dated back to 2200 B.C. The end of the Second World War led to the emergence of a form of communist dictatorship installed by Mao Zedong that constricted the people’s rights in an otherwise sovereign country. China began modernization in 1978 with attempts to leave behind the mysterious Maoism and towards market socialism (Jianwu and Kuijs, 2007). Economic decision making was decentralized but in a politically controlled environment resulting in growth in GDP. Since the 1970s, China has been implementing efforts to curb the country’s growth rate including limiting families to only one child. China also maintains the largest standing army in the world. On the other hand, Japan took a different path to civilization. After World War II, Japan began using a parliamentary system that was installed by the American and British forces. Years later, Japan was experiencing rampant economic growth and development due to a collective work ethic in the country, national pride of their culture, and the ability of the government to collect international capital. With the 1997 and 1998 recession, Japan experienced a negated form of growth and development due to financial issues in the banking system of Japan. However, in 1999, the economy began to stabilize due to government spending. Japan’s homes only a mere one tenth of China’s population (Jianwu and Kuijs, 2007). Business executives and politicians control most of the power. Japan has a rugged landscape minimizing the chances of agricultural activities in the country; thus, the country’s economic success can only be attributed to economic policies or rather the country’s business system. The Japanese culture has immense value for loyalty to country and family work. The economic success of Japan in the 60s to the 80s resulted in huge amounts of capital to accumulate which was initially directed to the US but recent changes have seen Japan’s investments head to China. The key reason why Japan is successful is the small budget they dedicate to Defence, which is around 1% of the country’s total budget (Jianwu and Kuijs, 2007). In China, philosopher Confucius came up with a thought pattern that was key to informing the Chinese people about their sense of national duty. “He believed in and practiced the highest standards of morality, yet did it all in the spirit of moderation and harmony so admired by the Chinese” (Morton, 1995). The aim of this thought was to eliminate moral relativism during his time. “In contrast to the spirit of Confucius’s age and to the behaviour of those addicted to the pursuit of selfish whims, the gentleman must banish from his conduct and even from his manner or expression anything savouring of violence, arrogance, or impropriety” (Morton, 1995). Confucianism considered profit-making a selfish act which made competition in the market look like a crime. This thought resulted in the development of an incompetent economy in China before the revolution began. Japan formed a value system that focused on refined work ethics helping Japan’s economic revolution rather than hinder it as compared to the Confucius thought in China. The Japanese people have internalized a sense of responsibility which sees them work for the well being of one another. “Here, more than in the family, work is self –validating in the sense of affirming one’s personal achievement and maturity, and in validating one’s belonging and participation in a social group” (Eisenstadt, 1996). In essence, the Japanese culture discourages individualism and focuses on the significance of traditional values and success achieved as a group. This notion has been broken down at various levels of business creating another notion that firms in Japan are meant to create employment for the people and that profit making should come later as a long term goal. This notion is supplemented via the continued creation of a market share more willingly than making of profits. The difference with the system in China which holds high value for shareholders, the business system of Japan puts emphasis on serving its society and employees. Furthermore, Alston and Takei (2005) believe that the Japanese culture that drives them to work for the nation or rather collective groupism and not as an individual is being supported by the government through the Ministry of Finance which provides business activities that conform to the priorities of the nation with active support. The Japanese business system, otherwise referred to as the keiretsu formed a network of firms that entirely depended on government funding. Nissan was among such companies that had considerable success under this system but later suffered the consequences when the government and banks no longer had the capacity to support them. Upon its revival in 1999, Nissan was under new management from a non-Japanese origin, indicating the measure to tackle and cope with such market discrepancies. The differences in the economic statistics between the two countries can be attributed to the different business systems employed in the two countries. After the 1997/1998 recession, Jianwu and Kuijs (2007) report that China’s real GDP growth rate in 2000 was at 8% while Japan’s was 1.3%. Japan employs a business system i.e. a market capitalism system where saving is in the hands of the individual. Aziz, Jahangir and Cui (2007) believes that leaving the decision of saving to individuals results in reduced savings rate as compared to a mixed socialist business system. Japan has a business system that reflects a market capitalist system while China’s business system reflects a mixed socialist market system. As a result of the reduced savings in Japan’s system, there will be reduced investments as compared to the high savings in China which result in increased investments. The government of China controls the rate of investments in the country while Japan tries to de-associate the government with economic activities. A socialist system has advantages just as it has disadvantages as Japan’s case presents. Japan exhibits these advantages via its successful efforts to recover from the recession that hit it hard in the 1990s (Jianwu and Kuijs, 2007). Japan employs deregulation to create new business and encourage decentralization of the economy while China’s principal changes are employed through revolutions which is common among socialist economies where the revolutions are government-initiated. Other advantages realized by the Japanese system were first through its dedicated efforts for long-term employment where in 2000, China’s GDP per capita was a mere $3, 600 as compared to Japan’s average GDP per capita of $24, 500. This can be attributed to China’s huge rate of unemployment with China having more than doubled the rate of unemployed people in Japan. Secondly, Japan demonstrated the capabilities of a socialist economy to control rates effectively when it recorded a negative inflation rate as compared to China’s 0.4% (Jianwu and Kuijs, 2007). In 2000, the international trade conducted by Japan was almost double that conducted by China. Japan’s exports totalled $450 billion while China’s exports accumulated to $232 billion. The primary commodities exported by Japan include high technology products like semi-conductors, automobiles, office machinery, as well as chemicals. On the other hand, Witt (2006) reports that China’s primary exports included footwear, sporting products, and toys. Similarly, the two nations recorded differences in commodities imported with Japan imports totalling a mere $350 million as compared to China’s $197 billion. The main products imported to Japan include foodstuffs, textiles, and fuels. Most of the foodstuff in Japan is imported due to the inability of its rugged landscape to support agricultural activities. Agriculture in Japan accounts for a mere 1% of the country’s GDP. On the other hand, China’s main imports include plastics, machinery and equipment, steel, and iron. This heavy metal, machinery, and equipment importation can be attributed to the dominant manufacturing industry in the country. This is an indicator that the business system of China puts emphasis on international production rather than domestic consumption as in the case of Japan (Garnaut, 2010). China’s service industry accounts for only 26% of the working force while Japan’s service industry accounts for a massive 65% of the country’s labour force. This is the result of planned socialism in China as such an economy condemns and in worst cases makes illegal the existence or participation in service provision or service industry. This was the case with China until the 70s reforms allowed for them to keep their jobs in the service industry. Another dimension to view the different business systems in the two countries is through analysis of the living standards. Capitalism allows for free allocation expenditure and savings by consumers where they enjoy more products apart from the known essential ones. For instance, Japan’s population may be one tenth of China’s population but the number of cellular phone users is almost the same, where Japan had an estimated 63.88 million cellular phone users as compared to China’s 65 million. In addition, China had 22 million internet users in 2001 as compared to Japan’s 27.06 million users in 2000 (Grabowiecki, 2006; Yiping, and Kunyu, 2011). These varied levels of accessing supplementary commercial commodities indicate that the system in China controls more activities as compared to Japan’s business system which gives consumers a free choice of products to acquire in the market. Institutionally, Japan holds more education status as compared to China. In a global study to determine the Human Development Index, Japan’s ranking of 9th as compared to China’s 87th is an indicator that the system in Japan is more open to learning as compared to that of China. Despite the fact that these countries share many things, their differences can only be attributed to the business and/or economic systems implemented in the two countries. Both nations boost tremendous economic growth and development but with different strategies. Japan adopted the market capitalism system introduced by American and British forces leading to the present culture that focuses on material wealth, leisure, and value added products. China, on the other hand, has taken a more conservative path which has moved it from Mao’s planned socialism towards a market socialism system that is functional. The two countries are a perfect illustration of what a business system and/or economic system can do to the people of a given country as well as the impact the systems have on economic growth and development of the country. References Ahmadjian, C. & Lincoln, R. (2001) ‘Governance, and learning: case studies in change from the Japanese automotive industry’ Organization Science, vol. 12, no. 6, p. 683. Alston, J.P. & Takei, I. (2005) Japanese Business culture and practices: a Guide to twenty-first century Japanese business, iUniverse. Aziz, J. & Cui, L. (2007) Explaining China’s low consumption: the neglected role of household income, IMF Working Paper. Bird, A. (2002) Encyclopedia of Japanese business management, Routledge. Eisenstadt, S.N. (1996) Japanese civilization, London, The University of Chicago Press. Garnaut, R. (2010) Macro-Economic Implications of the Turning Point, China Economic Journal, vol. 3, no. 2, pp.181-190. Grabowiecki, J. (2006) Keiretsu groups: their role in the Japanese economy and a reference point (or a paradigm) for other countries, Visiting Research Fellow Monograph Series, Institute of Developing Economics, IDE-JETRO. Jianwu, H. & Kuijs, L. (2007) ‘Rebalancing China’s Economy-Modeling A Policy Package’ World Bank China Research Paper, no. 7. Morton, S.W. (1995) China Its History and Culture, New York, McGraw-Hill, Inc. Witt, M. A. (2006) Changing Japanese Capitalism: Societal Coordination and Institutional Adjustment, Cambridge University Press. Yiping, H. & Bijun, W. (2010) Cost Distortions and Structural Imbalance in China, China &World Economy, vol. 18, no. 4, pp. 1-17. Yiping, H. & Kunyu, T. (2011) Causes of and remedies for the People’s Republic of China’s external imbalances: the role of factor market distortion, ADBI Working Paper Series, no. 279. . Read More