Analysis of Chinese, Korean and Japanese Management Styles - Case Study Example

Analysis of Chinese, Korean and Japanese Management Styles By Introduction The emergence of globalisation eliminated crossborder trade barriers and enhanced the flow of capital, labour, culture, and ideas across the globe. As a result, today MNCs can easily enter an overseas market and manufacture or market their products there. Multinationals from the three Asian countries such as Japan, Korea, and China are leading the global market today, particularly in the areas of electronics and automobiles. Several factors including vertical keiretsu, Ringi system, dual structure, lean manufacturing, lifetime employment, job rotation and mobility, seniority based wages and promotion, and enterprise trade unions contribute to the success of large Japanese companies. Similarly, family ownership, strong corporate culture, relationship with banks and government, and unique HR practices are the underlying features of the Korean chaebols. However, some of those factors that contributed to the efficiency of Japanese and Korean management styles resulted in some unintended effects later. Although the Chinese market is widely recognised to be a major source of economic opportunities for foreign firms, many of the multinationals find it hard to position their brand in China due to multiple issues. There are many similarities and some differences in the internationalisation strategies practiced by Japanese, Korean, and Chinese firms. This paper will critically analyse Chinese, Korean, and Japanese management styles in the light of supporting evidences. Japanese and Korean Management Styles While analyzing the corporate history of many well known and large Japanese companies, it is identified some factors that contributed to their success later became their burdens. In order to evaluate this scenario critically, it is essential to gain an in-depth knowledge of the common management styles or approaches adopted by Japanese enterprises. Under the Japanese management style, organisational systems are generally seen as an integral part of the larger societal environment with which they interact on a continuous basis. In addition, Japanese management processes are influenced not only by external environmental culture and constraints but also by management philosophy. Although this policy greatly assists Japanese firms to enhance the transparency of their operations and to contribute significantly to value creation, it often prevents them from responding to external environmental changes appropriately and effectively. The three elements of concern emphasized by the Japanese management culture including group consensus in decision making, job security, and quality control notably contributed to the success of many large Japanese corporations (lecture 03, pp.16-17). However, the same elements became obstacles for those companies while addressing challenges and achieving great operational efficiency. Since excellent salaries and employment security constitute an underlying feature of the Japanese management culture, Japanese companies cannot terminate employees or cut jobs in their effort to address threatening market challenges like the global financial crisis 2008-09. As a result, those business houses often find difficultly with reducing their spending, and subsequently continue their operations unprofitably. Although group consensus in decision making is also an effective management approach to enhance group collaboration and cohesion, it sometimes becomes a barrier for managers in effectively responding to some immediate situations or issues that are of strategic importance in the long term. In other words, managers can implement a proposed decision or policy only after the group consensus is achieved. According to the findings of School of Management, most of the Japanese corporations are rigid and extremely hierarchical in their form (p. 6). Even though this rigid and extremely hierarchical organisational structure has assisted companies to execute their corporate governance policies successfully and enhance operational transparency, the companies faced numerous management difficulties due to lack of flexibility. Another important aspect of Japanese management culture is that it greatly relies on the utilization of social and spiritual forces for the firm’s benefit (Ibid, p. 6). Lifetime employment, seniority promotion, and enterprise trade unions are some of the examples of such forces (lecture 02, p.14). This type of a management style often leads to confusions and disputes when the company plans to adopt some unconventional strategies to promote its business growth. The Japanese management style is characterised with self-perpetuation of top management that often led to a lack of corporate strategy. Even though group decision making was fostered to enhance team spirit, it often resulted in lack of individual responsibility, and this in turn led to utter irresponsibility on the part of top management. Similarly, the Japanese management culture encouraged differential treatment of people on the basis of their nationality, gender, and age in order to enjoy some business benefits. However, this practice posed serious challenges to companies when they spread their business to foreign countries that follow strong anti-discrimination legislation. While evaluating how the sources underlying the competitive strengths of Korean Chaebols led to a major economic crisis, it is identified that Korean Chaebols increasingly depended on debt financing. The South Korean government had also greatly relied on debt financing so as to keep commercial banks and Chaebols solvent when many of the declared economic reforms remained stalled. According to the Centre for Asian Business Cases (2001), prior to the beginning of the Asian economic crisis, South Korea became informed of the troubles emerged in its economy with the collapse of Hanbo Steel, the country’s 14th largest chaebol. At the time of the collapse, Hanbo Steel had over US$6 billion in debt. By the late 1997, five major chaebols with a combined asset worth of 26.7 trillion won were unable to meet their debt obligations. In addition, the debt level of five major chaebols increased from 220.4 trillion won in late 1997 to 225.1 trillion won by late 1998 (Ibid, p.8). Therefore, it is clear that excessive dependence on debt financing by chaebols contributed notably to the economic crisis. The long standing close relationships between chaebols, banks, and the government assisted chaebols to obtain huge amount of loans or other credit packages without much legal formality. To illustrate, nine chaebols were given 40% of all loans lent by Korean banks in 1964. In the initial periods of establishment, chaebols had insufficient sources of finance to run its operations, and hence they extensively relied on government-supplied capital to move into capital-intensive industries (lecture 06, p.5). Although this strategy benefited them to drive their daily business activities without financial difficulties, the state regulated flow of capital was one of the major reasons chaebols failed to establish their own banks. When the number and size of chaebols increased in the country, the Korean government could not find adequate resources to finance them, and this situation led to the failure of many chaebols. Due to the increased number of affiliates and their large size, it was not possible for individuals to hold huge stakes in them. Finally, centralisation of power is another key feature and competitive strength of chaebols that led to economic crisis (lecture 06, p.8). Under this centralised management culture, CEOs’ decisions are final and binding, and could not be questioned by anyone. As a result, chaebols often paid for the thoughtless decisions taken by CEOs. Chinese Market Environment The Chinese market remains to be a major source of economic opportunities for overseas companies due to its huge size and availability of cheap materials and labour. However, achieving market success in this fast emerging economy has not been an easy task. Although Chinese market opened its doors to foreign businesses with the announcement of open door policy in 1978, China still follows the communist ideology of equal distribution of wealth, and hence the Chinese government maintains a set of market regulatory policies with which foreign firms are to comply. As a result, foreign businesses operating in China usually experience many difficulties. While operating in China, foreign companies lose the cost advantage that they enjoy in other developed markets, because prices offered by Chinese local businesses are often much lower. For instance, IKEA (a Dutch company specialized in furniture and home decoration) believed its products to be the most price-competitive ones in the world. However, the company failed to sustain this low price advantage in China as Chinese local firms offered quality items at cheaper prices. Most of the local firms just copied the designs of famous brands and hence their design costs were almost zero. In addition, procurement of cheap materials and labour was easier for local firms when compared to foreign competitors. They could also take advantages of less expensive transportation methods. As a result, IKEA had to follow a massive production process to cut down its costs. In addition, the price expectations and spending behaviour of Chinese local families were very different as compared to the rest of the world. According to a public survey conducted by IKEA, and reported by Wei and Zou (2007) in Beijing, the company should have aimed at local families having monthly income of RMB6,000. However, the company was able to offer cheap and durable goods to common people in the rest of the global market. To make the issue clear, another recent survey conducted in Beijing reflected that majority of consumers who purchased furniture and decorations belonged to an economic class with a monthly income below RMB3,000 and over 70% of them preferred local brands. Hence, it is not practical for IKEA to target people with monthly income higher than RMB6,000 because this practice would significantly limit the firm’s potential customer pool (with a monthly income below RMB3,000) (Ibid). “Most of the people worked in foreign invested enterprises, consisting of a distinct social group versus the majority of urban workers who worked in state-owned or private firms” (Wei & Zou). In short, the organisation’s strategy of targeting at common people with low prices was not feasible in the Chinese market context. Similarly, it is identified that Chinese market system is extremely different from the Western legal-rational market systems, and therefore Western corporations face a set of potential challenges while operating in China (lecture 8, p.10). In addition, social, cultural, and spiritual perceptions of Chinese people are really distinct, and hence foreign firms often find it difficult to keep their business in line with Chinese consumer interests. Referring to a report by McKinsey Quarterly, China is facing a threatening labour shortage (lecture 8, p.13), and this issue may pose serious threats to overseas companies operating in the country. Finally, the Chinese government has framed policies such as tax reductions and financial subsidies recently to save its traditional industries from foreign competitors. Such governmental efforts would give Chinese local firms clear competitive edge over foreign companies. When Chinese market operation was a cumbersome task for many foreign businesses, some others were successful in entering the Chinese market. The CP case is a good example of successful entry in the Chinese market. According to this case study by Pananoid (2005), a series of highly unrelated conglomerate diversification in China assisted the company to strengthen its market presence and to cover a broader segment of the market. This conglomerate diversification raised many potential opportunities for the organisation to fuel its expansion into retail operations as well. As a result, the company planned to fasten its business expansion by increasing its 25 Lotus Supercenter stores in 2004 to a targeted 100 stores by 2006 in the Chinese market (Ibid). As noted already, Chinese people give great emphasis to their cultural and spiritual norms, and they have been traditionally following a range of religious and cultural customs for centuries. Many foreign companies have realized the significance of paying attention to the social, cultural, and spiritual traditions of China, and they restructured their operational strategies so as to fit into those Chinese traditions. CP Group is one of those businesses, and the corporation gave specific emphasis to the sustainability of ethnicity and common cultural background. The CP Group was founded by Chinese immigrant brothers Chia Ek Chor and Chia Siew Whooy, and this ethnic Chinese background of the founders greatly benefited them to shape their business to meet Chinese market needs effectively. In addition, the CP Group followed a Guanxi culture (networking with key people that provide them support), which is a central idea in the Chinese society. The valuable connections and thereby the exchange of favours involved in Guanxi benefited the corporation to establish well in the Chinese market very fast. Influence of Internationalization The Japanese internationalisation strategies were mainly based on FDI. Japan promoted FDI since 1960s and the country witnessed a massive scale of FDI in the mid and late 1980s. In addition, the country increased its import barriers. The central feature of the Japanese FDI strategy is incremental sequential investment. This strategy encouraged the application of underutilised resources to new businesses (lecture 4, pp.12-14). The incremental sequential investment strategy would enhance firms’ sustainable international growth, because it can facilitate the creation of a new line of business as a sequential process (Ibid). Under this internationalisation approach, firms are able to learn from their past mistakes and to revise their expectations. According to Chang (2011, Ch. 1), Sony gave specific focus to internal research and development (R&D) because the company believed that innovation is the key strategy to enhance its global expansion step by step. In addition, the company also tried to maintain diversity in its product offerings in order to meet the needs of the broader market segments. When it comes to the international expansion of Nissan, it appears that the organisation promotes localisation of all aspects of the business ranging from design to marketing. While analyzing the internationalisation approaches followed by Korean MNCs, it seems that they also extensively used the tools of FDI to increase their global market share. The Korean FDI First Wave during 1960s-1985 particularly focused on Southeast Asia, the Second Wave (1990s) on the North America and EU, and the Third Wave (1997) on Southeast Asia and China. The Korean firm’s motivations for FDI include market seeking, resource seeking, technology (knowledge) seeking, and network seeking. In addition, the Korean internationalisation approach has three phases such as entry at the lower end, expansion to the medium and high ends, and win the world (lecture 6, pp.10-11). The corporate history of Samsung and LG justify this internationalisation strategy. In the words of Chang (2011, Ch. 5), Samsung’s motivation for FDI was technology seeking, and hence the organisation paid great attention to production process technology and other technologies with clear trajectories. As Ramaswamy (2007) illustrates in his case study, LG started its internationalisation process with intensive exports to developing countries and then the company soon moved to cover markets in the developed world. Eventually the organisation launched a pool of joint ventures with well established Western corporations such as Caltex and EDS (Ibid). The Haier case and the Lenovo case are relevant to identify the internationalisation strategies practiced by nascent Chinese multinationals. The internationalisation strategies followed by Chinese corporations were based on the concept of Guanxi. Chinese multinationals relied on expansion strategies such as joint ventures, exporting, franchising and licensing, and wholly owned subsidiaries (lecture 8, pp.17-18). In other words, Chinese companies were eager to deploy every possible strategy to fuel their internationalisation process. In its initial phase of internationalisation, Haier mainly focused on developing countries to acquire international experience, and the company launched its first overseas joint venture in Indonesia. The company’s strategic plan was to produce one third of its total output in China and then export to international markets (Liu & Li, 2002). Lenovo primarily depends on business mergers and acquisitions to expand its international market as the top management believes that the company would take relatively a long time to grow organically in the global market. For instance, the company acquired IBM’s PC Division (PCD) in 2004 (Liu, 2007). Recently many Chinese multinationals have relied on business acquisition to spread their international business presence in an easiest way and to avoid the difficulties associated with establishing a wholly owned subsidiary or a franchisee abroad. Comparing the internationalisation strategies of Japanese, Korean, and Chinese MNCs, it is identified that these countries have some general strategies in going global. While analysing the Japanese internationalisation initiatives, it is clear that the country mainly depend on foreign direct investment (FDI) to spread its business landscape globally. After the World War II, Japan restricted its FDI due to shortage of capital and focused on developing export markets for industrial products (lecture 4, p.11). The Japanese FDI involves a combined use of incremental sequential investment and internalisation strategy. While analysing the path pursued by Japanese companies when they entered international markets, interestingly there is a close resemblance to the way Chinese companies like Haier enhanced their international expansion in terms of the sequence strategy. One of the major points of difference between Japanese and Chinese internationalisation strategies is that Japanese firms focused on high-tech industries like computers and semiconductors whereas Chinese corporations concentrated on their traditional product lines including home appliances. Korean companies also focused on FDI to grow their market horizons at the earlier stages of business expansion but they eventually adopted externalised strategies to go global. For this, they paid higher attention to R&D so as to capture tactic knowledge. The key similarity between Japanese and Korean internationalisation strategies is that firms from both the countries try to grow their global presence through FDI. However, when Japanese corporations’ internationalisation approach is based on internalisation strategies, an externalised mode is followed by Korean multinationals to spread their business globally. Conclusion From the above discussion, it is clear that some features of the Japanese management style such as lifetime employment and rigid organisational structure became burdens to the very Japanese companies later. Similarly, some key characteristics of Korean chaebols like family ownership and excessive debt financing led to a major economic crisis too. IKEA failed to take advantages of the emerging opportunities in the Chinese economy as the company could not compete with low-cost Chinese local firms successfully. At the same time, the CP Group achieved market success in China because the organisation identified the importance of cultural norms and traditions existing in the Chinese society. When the Japanese and Korean companies mainly focused on FDI to grow their global presence; Chinese multinationals promoted their internationalisation based on a mix of expansion strategies including Guanxi, joint ventures, exporting, licensing and franchising, and wholly owned subsidiaries. The Japanese FDI followed an internalised approach whereas Korean FDI promoted an externalised mode to enhance their global business expansion. References Australian School of Business. MGMT2105 East Asian Business Enterprise. Chang S (2011) Sony vs Samsung: The Inside Story of the Electronics Giants Battle For Global Supremacy. US: John Wiley & Sons. Centre for Asian Business Cases (2001) Daewoo and the Korean Chaebol. The University of Hong Kong. HKU 143: 1-29. Liu CZ (2007) Lenovo: An example of globalization of Chinese Enterprises. Journal of International Business Studies, 38: 573-577. Liu H & Li K (2002) Strategic Implications of Emerging Chinese Multinationals: The Haier Case Study. European Management Journal , 20 (6): 699–706. Pananoid P (2005) ‘The changing dynamics of Thailand CP Group’s international expansion’ in L. Suryadinata (ed.) Southeast Asia’s Chinese Businesses in an era of globalization. Singapore: ISEAS: 321-363. Ramaswamy K (2007) LG Electronics: Global strategy in emerging markets. Thunderbird School of Global Management, 00732: 1-12. School of Management, Australian School of Business, University of New South Wales. NISSAN Motors Manufacturing (UK): A Successful Mixed Marriage. Wei L & Zou X (2007) IKEA in China: Facing Dilemmas in an Emerging Economy. ACRJ, 11 (1): 1-21. Lecture Notes. Read More