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Japanese Companies in the Czech Republic: A Comparative

Performance Analysis

Michaela Blahová, Faculty of Management and Economics, Tomas Bata University in

Zlín – Czech Republic

Přemysl Pálka, Faculty of Management and Economics, Tomas Bata University in Zlín –

Czech Republic

Rick Edgeman, Business and Technology Department, Aarhus University – Denmark,

and Industrial Engineering and Management Division, Uppsala University – Sweden

Purpose: This paper explores the performance of Japanese companies located in the Czech

Republic that focus on the manufacturing of transportation machinery parts (due to their

largest share of the manufacturing industry) and compares their results with other companies

in the same industry in the Czech Republic (irrespective of the owner’s country of origin) in

order to find out whether Japanese companies have been succeeding in combining a new

focus on strategy, profit orientation, global outlook and flexibility with their traditional

strengths of efficient processes, quality orientation, attention to detail and the capacity to win

a substantial degree of loyalty from their employees, and, therefore, achieve improved

corporate performance.

Approach/method/design: The research involved assembling key academic and other

literature on the subject of corporate performance as well as an in-depth analysis of various

measures of financial analysis. Despite widespread calls for a balanced approach to assessing

organizational performance, financial measures still dominate and, therefore, the research

took them into consideration. The data obtained were further analyzed by the R free software

environment for statistical computing and graphics.

Findings: The study incorporated a sample of 180 companies in the period between 2005 and

2010 in order to detect the influence of the financial crisis. Within the analysis, outliers were

excluded using the statistical method of boxplots. Although the research did not prove a

causal relationship between the enhanced performance of Japanese companies and recent

changes in the global economy, it identified companies with above-average performance

values that respond to changes in economies and adapt their business focus quickly.

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Value/contribution: The paper shares valuable insights on performance measurements of

Japanese companies located in the Czech Republic that focus on manufacturing transportation

machinery parts in comparison with other companies in the same industry in the Czech

Republic (irrespective of the owner’s country of origin).

Submission category: Academic

Introduction

Japan is currently one the most influential economies in Asia and belongs among the largest

economies in the world. It has been widely reported that Japanese management practices have

had an enormous influence on Western management practices over the past decades.

Decisions by consensus, lifetime employment, continuous training, and other distinctive

practices have brought remarkable economic success to many companies.

The success of Japanese companies in the world markets since the 1970s has attracted

widespread attention (Haak and Pudelko, 2005; Prahalad and Hamel, 1990; Yang, 1984;

Abegglen, 1985; Hayes, 1981; Drucker, 1971). What became known as the Japanese

management model was the first non-Western model to question the supremacy of Western

approaches to management, and its principles and practices were imitated in many ways in a

number of other Asian countries, such as South Korea, Taiwan and Singapore.

But “learning from Japan” was not only a phenomenon limited to Asian nations. Many

Western corporations also adopted several aspects of Japanese management, particularly with

regard to production processes, and Japanese management developed into a sub-discipline of

management studies (Sullivan, 1992; Sakai, 1990; Rehfeld, 1990).

However, after a great boom in the 1970s and 1980s, the Japanese management system started

to be viewed as antiquated (Porter, Takeuchi and Sakakibara, 2000). Numerous factors

contributed to this, including the long-lasting stagnation of the Japanese economy, ill-advised

macroeconomic policies, delayed microeconomic reforms, delayed corporate restructuring,

the introduction of new technologies, globalization-induced changes in the international

competitive environment, the entry of new competitors that are aping Japanese management

practices, socio-demographic developments and changes in the value system of Japanese

society.

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The traditional Japanese management model has been perceived by many observers as being

in a crisis recently. The key reasons for Japan’s economic crisis and its perseverance during

the so-called “lost decade” of the 1990s were mainly to be found on the macro level, which

was beyond the control of corporate managers. Many Japanese managers have expressed

without hesitation the view that the Japanese management model is in need of change. Several

weaknesses of the Japanese model can be mentioned in comparison to the U.S. model, which

is generally identified with strategies and is profit and shareholder value oriented. Among the

other advantages of the U.S. model (in comparison with the Japanese management techniques

used in the 1970s and 1980s) are the major consideration of market outcomes, globalization,

mergers, acquisitions and the selling of company divisions, flexibility, promptness and

mobility. Nevertheless, the Japanese and their management system have generally long been

adaptable in times of distress or change.

Japanese management techniques have often been considered among the best in the world

over the past few decades. Recently, however, the economic environment has drastically

changed in Japan and resulted in profound changes in companies’ structures and other

practices. As a result, Japanese managers’ work values and attitudes have likewise changed

(Haghirian, 2010; De Mente, 2012; Schaede, 2008; Alston and Takei, 2005).

Recent years have witnessed dramatic changes in the Japanese mindset and behaviour in

virtually all categories of industry and on all levels of management – a change based on the

stark realization that the future of Japan depended on the rapid rationalization and

globalization of both economy and society in general (De Mente, 2012; Shimizu et al., 2010;

Kato et al., 2012). Companies have begun recruiting young employees – Japanese and foreign

– who are multi-lingual and multi-cultural. Another of their advantages has been the ongoing

hold the positive elements of their traditional culture have had on the corporate world.

Business management in Japan today is a hybrid of core concepts from the traditional culture

and a growing number of Western business practices, and it is continuing to evolve. It seems

that the Japanese Management System has overcome recent major difficulties, and after two

decades of relative decline is making a resurgence. Western companies are well advised to be

aware of it.

Nowadays, Japanese companies seem to have already overcome the major difficulties.

Therefore, this paper attempts to verify through a sample of Japanese companies located in

the Czech Republic whether they have been succeeding in combining a new focus on strategy,

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profit orientation, global outlook and flexibility with their traditional strengths of efficient

processes, quality orientation, attention to detail and the capacity to win a substantial degree

of loyalty from their employees. Further, it tries to determine if Japanese companies are more

powerful competitors than ever before and have achieved improved corporate performance.

Methodology

According to the Japanese Chamber of Commerce and Industry in the Czech Republic, more

than 200 Japanese companies of both manufacturing and non-manufacturing industries and

research institutes have been attracted to the Czech Republic (http://www.nihonshokokai.cz).

Despite the current economic crisis, these companies have continued to operate in the country

and have created approximately 40,000 jobs.

Based on the research survey on the “Japanese Manufacturing Affiliates in Europe and

Turkey” carried out by the Japan External Trade Organization (JETRO –

http://www.jetro.go.jp) in 2010, the Czech Republic, which has attracted the highest number

of Japanese companies among Central and Eastern European countries, has emerged as the

fourth largest manufacturing base for Japanese firms in Europe (after the three Western

European giants, namely the UK, France and Germany). The largest Japanese presence is

observed in the transportation machinery parts industry (almost 40%) followed by electric and

electronic parts, ceramics, soil and stone, general machinery (including moulds and machine

tools) and electric and electronic machinery.

Relations between the Czech Republic and Japan have become markedly closer in the

economic, political and even cultural realms. The Czech Republic has been the recipient of

significant direct investment from Japan, too (www.czechinvest.org). Japan has been one of

the biggest foreign investors in the Czech Republic so far – direct investments from Japan

have reached more than 56 billion Czech crowns, which makes the average amount per

Japanese worker in the Czech Republic the highest compared with the investments of other

foreign countries investing in the Czech Republic. Therefore, the Czech Republic has become

an important partner for Japan in Central Europe.

Based on these facts, the main aim of the study is to determine whether Japanese companies

that focus on the manufacturing of transportation machinery parts (due to their largest share in

the manufacturing industry in the Czech Republic) achieve higher performance (based on

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selected measures of financial analysis) than their rivals in the same industry sector

(irrespective of the owner’s country of origin), in order to prove that the recession negatively

influencing Japanese business sectors worldwide is already over.

Despite widespread calls for a balanced approach to assessing organizational performance,

financial measures still dominate. Therefore, the research focused on the following

ratios/measures of financial analysis: Profitability, Liquidity, Solvency/Leverage and Activity

ratios.

The economic and financial information of companies was analyzed by means of the

Albertina database, a unique database of all registered companies in the Czech Republic.

Access to the database was provided by the Faculty of Management and Economics of Tomas

Bata University in Zlín.

The data obtained from the Albertina database were further analyzed by the R free software

environment for statistical computing and graphics in order to exclude outliers. Outliers are

observations that are numerically distant from the rest of the data selected and that are the

most extreme values (they include the sample maximum and sample minimum, or both).

Limitations of the Research

Although we believe that the results presented in this paper could be extended to other

contexts, this study has limitations that could be addressed in further studies.

First of all, we have selected an industry sector with the largest Japanese presence. We would

recommend extending the research to all Japanese companies located in the Czech Republic.

Furthermore, the research may be broadened to include Japanese companies located in other

countries, e.g., Japan, where transformational changes may first be recognized.

Moreover, results of the study might have been influenced by some missing corporate data of

companies involved in the Albertina database. Although we selected ratios we considered to

be the most relevant in our research processing, more ratios might have been used for the

overall evaluation. Last but not least, we recommend that the results of this study be verified

in the real business environment.

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Determination of Research Question

Before starting the research the following research question was set: Is it possible to prove

and verify that Japanese companies that focus on the manufacturing of transportation

machinery parts in the Czech Republic achieve better performance results than other

companies in the same industry sector?

Results and Discussion

Based on the data obtained from the Albertina database (selection criteria: NACE 30, legal

form: limited liability company and joint stock company), 31 Japanese companies and 149

other companies (irrespective of the owner’s country of origin) involved in the manufacturing

of transportation machinery parts in the Czech Republic were identified.

The period between 2005 and 2010 was chosen in order to detect the influence of the financial

crisis. In the analysis, outliers were excluded – using the statistical method of boxplots.

In order to get more precise data, companies lacking more than 6 statistical observation units

or 3 and more values within 1 measure (e.g., ROE) were excluded. Missing values were

completed using a linear regression.

Furthermore, intervals that cover 90% of the range (based on credibility – outliers that are

unevenly distributed are excluded if the distribution is asymmetric) were identified, and the

lowest 5% and the highest 5% of the data were excluded (quantile-based identification).

The analysis also contained a spline, a smooth polynomial function that predicted the

development tendency.

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Table 1: Summary of Analyses

Ratios Japanese companies Other companies

Profitability Ratio (ROE) -2.85% 12.16%

Liquidity Ratio (Current Ratio) 1.27 2.22

Solvency Ratio (Total Debt to Total Assets) 57.92% 60.29%

Activity Ratio (Receivables Turnover) 76.81 days 68.70 days

Activity Ratio (Inventory Turnover) 55.51 days 75.21 days

Source: Own research

Within the profitability analysis, a profitability ratio Return on Equity (ROE) was taken into

consideration. Return on Equity (ROE) indicates how profitable a company is by comparing

its net income to its average shareholders’ equity. It measures how much the shareholders

have earned from their investment in the company. The higher the ratio percentage, the more

efficient management is in utilizing its equity base and the more profit is earned by the

investors. In general, financial analysts consider return on equity ratios in the 15-20% range

as attractive levels of investment quality.

There exists a sizeable difference between the ROE in Japanese companies, which was

negative 2.85% (after excluding outliers), and the ROE in other companies, which was

12.16% (after excluding outliers). The lowest value within the interval (quantile-based

identification) was negative 2.0436, while the highest value was 1.2761.

A company’s liquidity is a measure of its ability to meet short-term obligations. The Current

Ratio belongs to the most commonly used liquidity ratios. The higher the Current Ratio, the

more capable the company is of paying its obligations. A Ratio under 1 suggests that the

company would be unable to immediately pay off its obligations.

The Current Ratio of Japanese companies was 1.27 (after excluding outliers), whereas the

Current Ratio of other companies was 2.22 (after excluding outliers). The lowest value within

the interval (quantile-based identification) was 0.0018, while the highest value was 0.0631.

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Solvency ratios measure the ability of a company to pay its long term debt and the interest on

that debt. The Total Debt to Total Assets ratio is the percentage of the total debt financing the

firm uses as compared to the percentage of the firm’s total assets. A higher percentage

indicates more leverage and more risk.

After excluding outliers, Japanese companies had a lower Total Debt to Total Assets ratio

(57.92%) in comparison to other companies (60.29%). Thus, assets of other companies are

financed by debt to a greater extent than assets of Japanese companies. The lowest value

within the interval (quantile-based identification) was 0.0022, while the highest value was

1.1066.

Activity ratios measure how quickly a company can convert assets into cash or revenue. In

this study, two activity ratios were assessed: Receivables Turnover and Inventory Turnover.

The Receivables Turnover measures the company’s ability to collect outstanding account

receivables during an accounting period. The Inventory Turnover indicates how often the

company turns its inventory into revenue.

In the activity analysis, the Receivables Turnover of Japanese companies was 76.81 days

(after excluding outliers), whereas other companies had a turnover of 68.70 days (after

excluding outliers). Therefore, other companies managed to achieve slightly better results.

The lowest value within the interval (quantile-based identification) was 1, and the highest

value was 213.

The Inventory Turnover reached 55.51 days (excluding outliers) in Japanese companies in

comparison to 75.21 days (excluding outliers) in other companies. Thus, Japanese companies

managed slightly better results. The lowest value within the interval (quantile-based

identification) was 1, and the highest value was 296.

The following figures chart the chosen ratios for both Japanese and other companies in the

manufacturing of transportation machinery parts, as well as the influence of financial crises,

particularly that of 2008.

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Figure 1: ROE Development (Without Outliers) in Japanese and Other Companies in the

Czech Republic (Transportation Machinery Parts)

Source: Own research

Figure 2: Current Ratio Development (Without Outliers) in Japanese and Other Companies in

the Czech Republic (Transportation Machinery Parts)

Source: Own research

Figure 3: Total Debt to Total Assets Ratio Development (Without Outliers) in Japanese and

Other Companies in the Czech Republic (Transportation Machinery Parts)

Source: Own research

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Figure 4: Receivables Turnover Development (Without Outliers) in Japanese and Other

Companies in the Czech Republic (Transportation Machinery Parts)

Source: Own research

Figure 5: Inventory Turnover Development (Without Outliers) in Japanese and Other

Companies in the Czech Republic (Transportation Machinery Parts)

Source: Own research

Conclusion

The main purpose of this paper was to compare the performance of Japanese and other

companies (irrespective of the owner’s country of origin) in the manufacturing of

transportation machinery parts in the Czech Republic in order to verify the evolution of

Japanese management practices in response to the ongoing economic crisis and the

fundamental transformation of mature societies. Such transformations contribute to enormous

changes of paradigms and business models that have a great influence on corporate strategies

and performance indicators.

This study has determined that Japanese companies located in the Czech Republic

(transportation machinery parts) achieved slightly better results in the solvency ratio (Total

Debt to Total Assets) and the activity ratio (Inventory Turnover) in comparison to other

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companies in the same industry sector. On the other hand, other companies achieved better

results in the profitability (Return on Equity), liquidity (Current Ratio) and activity

(Receivables Turnover) ratios.

Based on the research results, it is not possible to prove that Japanese companies in the

manufacturing of transportation machinery parts in the Czech Republic achieve better

performance results than other companies in the same industry sector. However, the research

has been useful in identifying companies that achieve above-average performance values due

to a quick response to changes and economic trends. The results show that paying attention to

early signals of business opportunities and quickly implementing changes in business

processes result in increased performance and competitiveness.

Acknowledgement

The authors are thankful to the Czech Science Foundation for grant No. 14-18597P –

“Creating Strategic Performance Model Framework Based on Utilization of Synergy Effects

of Selected Management Systems” and the Operational Programme Education for

Competitiveness, co-funded by the European Social Fund (ESF) and the national budget of

the Czech Republic, for grant No. CZ.1.07/2.3.00/20.0147 – “Human Resources Development

in the field of Measurement and Management of Companies, Clusters and Regions

Performance,” both of which provided financial support for this research.

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Appendix

Statistical calculations (R free software environment) of selected ratios.

Figure 1: Development of ROE (Including Spline Function) in Japanese and Other Companies

in the Czech Republic (Transportation Machinery Parts) – Profitability Ratio (own research)

Figure 2: Development of Current Ratio (Including Spline Function) in Japanese and Other

Companies in the Czech Republic (Transportation Machinery Parts) – Liquidity Ratio (own

research)

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Figure 3: Development of Total Debt to Total Assets Ratio (Including Spline Function) in

Japanese and Other Companies in the Czech Republic (Transportation Machinery Parts) –

Solvency Ratio (own research)

Figure 4: Development of Receivables Turnover Ratio (Including Spline Function) in

Japanese and Other Companies in the Czech Republic (Transportation Machinery Parts) –

Activity Ratio (own research)

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Figure 5: Development of Inventory Turnover Ratio (Including Spline Function) in Japanese

and Other Companies in the Czech Republic (Transportation Machinery Parts) – Activity

Ratio (own research)