Organized by the HBS Asia Business Club, the Asia Business Conference (ABC) is a major event held once a year. I received an invitation to attend a HBS Junior panel this year and readily agreed. Reviewing the pre-conference material, two things caught my eye.
First, the members of the panel discussion. The coordinator was the Professor Michael Porter. The man who forcefully asserted:
“Major Japanese corporations don’t have any strategy. All they possess is procedural efficiency. They have no strategy, none of them stands out, and like a rat race, they end up eating up all the profits.”
Now, I am 90% in agreement with this opinion. Porter is a very sharp professor and the author of Competitive Strategy, which has recently been chosen as No. 1 of the top 100 business books by MBA holders.
One of my fellow panelists was Professor Ezra Vogel, author of the famous book, Japan As Number One. He is a Japanophile, completely fluent in Japanese.
The other panelist was Shin Yasunobe, who retired from the Ministry of International Trade and Industry and moved to the Stanford Japan Center. Both these men were very scholarly.
Then there was me.
The other thing that surprised me was the title of the panel: “What Should Japan Do Now to Revive Its Economy?” The specific question for me was, “What should Japanese companies do differently?” The implicit meaning of this was that Japan is somehow heading in the wrong direction. It was asking, “What can Japan do to make things better?”
This is certainly a formidable question, I thought, and summed it up in my own way as follows:
(1) The Change in Japan’s Economic Structure and the Bubble
(2) Faults that Japanese Corporations Have Fallen Into
(3) The Present Economy and Business Conditions
(4) Toward a New Japan Model
I arrived in Boston via Chicago. Looking out of the taxi window en route to HBS, I noticed that the Charles River was frozen over, and experiencing this familiar cold filled me with nostalgia. It had been a while since I had been at HBS; a new campus had been built, and as always the atmosphere was intellectual and lively. I arrived at the venue to find more than 300 students assembled. About half were Asian. I learned afterward that over two-thirds of the attendees were students from graduate schools other than HBS, including MIT, the Kennedy School, the Fletcher School, Babson University, Boston University, and Boston College. Some had even come all the way from Dartmouth and Yale.
Prior to the start of the discussion, the man who had invited me explained to the audience the object of the discussion. When he introduced Ezra Vogel, he apologetically commented, “In the end, of course, Japan was not No. 1.” In line with the title of the panel discussion, I wondered if there was an implicit consensus in Boston that Japan was in dire straits and the atmosphere was set against any other opinion. After the panelists had been introduced, professor Michael Porter began to speak.
“Japan is facing four crises:
· Japan has no competitive power domestically, but is strong globally
· Profitability is low
· Predisposition to a high cost of living
· No new industries are emerging
“In the midst of facing these four crises, the government has virtually no role (looking to the past, the role of the government has always been restrictive, so this point is not an issue). In terms of corporate management, key strategic focal points are not fixed, and Japan is sandwiched between the US and Asian countries who are gaining ground on Japan, meaning the prospects for future revitalization are extremely slim. I’d like to ask another panelist, Mr. Hori, to address this point.”
I had listened calmly to begin with, but halfway through I began to feel he was mistaken. Toward the end, I threw aside the script that I had prepared, and began to feel the need to first of all offer a rebuttal. Yet the atmosphere in the hall was cold. Everyone seemed to completely agree with Porter’s pessimism, and that would be difficult to overcome. But I decided to speak out anyway with the view of totally altering the prevailing understanding.
Here is the gist of what I said:
I completely objected to what professor Porter had said. As I said this, I could feel the atmosphere in the room shift. I continued with examples of the US in the 1980s:
“Three of the four crises mentioned were the same as those the US faced in the 80s, and the US recovered, didn’t it? Even if they can be referred to as crises, it is certainly not impossible for Japan to recover. Regarding the fourth point about no new industries emerging, well, this is just a lack of understanding. By 2005, I suspect that in regard to cutting-edge technology, Japan will turn around completely. Mobile phones, electronic components, optical fiber, semiconductor manufacturing equipment, liquid crystal and home electronics—all of these are at the cutting edge of technology. What’s more, Japan maintained its manufacturing industry even while the yen plummeted to less than half its value, starting in 1980. We still manufacture 100 million tons of iron and steel every year. Starting now, Japanese corporations will again select, concentrate, and launch collaborations with ventures in the field of cutting-edge technology. Japan has nothing to worry about.”
Professor Porter did not look convinced, and objected: “Even with the mobile phone technology that Japan is always raving about, a competitive environment was just created a few years ago when Motorola entered the market. Isn’t it true that Motorola, Ericsson, and Nokia are the dominant global mobile phone manufacturers?”
I jumped in immediately with a counter-argument: “In 2005, I believe Japanese manufacturers will claim over 50% of the world market share in mobile phones. The only reason Japanese mobile phones are not being used around the world right now is that they feature different specifications than the US, Asia, and Europe. Once we enter the third generation of mobile phones and one universal standard is adopted, along with the miniaturization of parts, insertion technology, and the degree to which these technologies have been accumulated, it will all come down to who has been doing this the longest. And in this case, we will see a completely new competitive environment that will be advantageous for Japanese manufacturers. Regarding Motorola, well, this was a political issue, and should be kept separate from economics.”
Professor Vogel and Mr. Yasunobe went on to talk about politics and government. There was then an exchange of opinions involving everyone present, including the audience. The exchange was as follows:
Q: Can Japan really bolster its economy merely through the field of cutting-edge technology? How many years before Japan recovers?
My answer: Instead of viewing Japan’s economy through the lens of a single gross domestic product, it should be seen as the total sum of many GDPs from different economic sectors. Accordingly, rather than viewing the situation in terms of Japan as a whole, it should be seen in terms of unit sectors. Regarding when Japan will recover, some sectors have already recovered, while others will take more time (finance, construction, real estate, etc.). GDP is the sum total of all these sectors. Entry into inefficient sectors has been made mainly by the US, and as cutting-edge management methods are being introduced, recovery could occur faster than expected.
Q: What do you think about Japan’s national debt of 600 trillion yen?
My answer: Well, you certainly can’t brush it off, but it is not really a major problem. Japan is one of the world’s largest creditor nations and has the biggest trade surplus. In other words, our balance sheet is healthy, and our profit/loss (income statement) is also in the black. The 600 trillion yen is a domestic issue. Compared to this 600 trillion yen, personal financial assets come to around 1,200 trillion yen. That is, private financial assets exceed government borrowing. In the US, the public bears the same level of debt as the Japanese government (the average level of savings is negative, with corporations also in the minus area). Basically, the only difference in debt is whether it is borne by the government or private citizens.
The panel wound down after 80 minutes.
Professor Porter had appeared a little put out at first, but seemed to be in a good mood toward the end, and I was glad. As soon as it was over, several Asian students approached me to say that I did a good job, with tears in their eyes. They also could not forgive the stereotyping by the US, but felt frustrated at not being able to provide a counter-argument themselves.
A JAGRASS gathering followed for Japanese graduates living in Boston, and many people offered me their gratitude and words of praise. They were all glad I had spoken out.
I suddenly remembered a panel discussion held by HBS in Hong Kong in 1997. I had attended as a participant, not a panelist. Japan had been completely torn to shreds, so I was looking forward to hearing the objections of the Japanese panelist as he took to the stage. However, nothing happened. Alluding to a small and trivial example, he merely said the Japanese economy was “difficult.” As a Japanese person, I honestly wanted the ground to open and swallow me up.
Since then, I have resolved to always emphasize positive aspects and to encourage people to correctly understand Japan.
What made me happiest of all was that the Japanese and other Asian students present this time at HBS felt a sense of hope for the future instead of the disappointment I had experienced in Hong Kong.