Michele Uberti

Last updated version: April 30th 2012

Table of contents:

Introduction : ........................................................................................................................................................3

Chapter 2: Understanding national competitiveness ...........................................................................................3

Chapter 3: Sun Tzu’s strategic thinking and contemporary system .....................................................................5

Chapter 4: Guanxi dynamics and network buildings ............................................................................................6

Chapter 5: The overseas Chinese: their origins and operational environment ...................................................8

Chapter 6: The Chinese Family business: organizational challenges and competitive edge ...............................9

Chapter 7: Competitive Chinese business strategies in ASEAN ........................................................................ 10

Chapter 8: The evolving environment of the Chinese state enterprise ............................................................ 12

Chapter 11: Government business relations in Japan and South Korea ........................................................... 13

Chapter 12: Comparative large Japanese and Korean Business groups ........................................................... 15

Chapter 13: Japanese management style ......................................................................................................... 17

Chapter 14: Developing competitive advantages of Japanese companies ....................................................... 18

Chapter 15: Managerial styles of Korean companies ....................................................................................... 20

Introduction :

The incredible rise of East-Asian economies in the post-war age, led at first by Japan in the 1950s, followed by the Asian Tigers in the 1960s and largest ASEAN countries in the 1970s, and finally by mainland China and Vietnam in 1980s-90s has been explained by Western observers in many ways. The Confucian culture is the main trait d’union of all East-Asian countries. All major East-Asian management systems (i.e.: Japan, China, South Korea and Taiwan) have been influenced to varying degrees by Confucianism throughout their history. Typical Confucian traits seen as powerful business assets are strong work ethic, high family values, pragmatism, thriftiness, deep personal commitment and conflict avoidance in social relations. Another popular explanation points out the role of state in promoting GDP and export growth through a heavy (direct and indirect) involvement in domestic economies. A third analysis focuses on the positive economic spill overs of U.S. involvement in this macro region since the end of World War II due to the Cold War’s international competition. The 1997 Financial crisis of the Asian Tigers had a shocking, even if short-term, impact on these economies. But most of them recovered soon and swiftly during following years. A different doom hit Japan, where the asset bubble crisis of 90s has not yet been fully overcome after twenty years and the consequent so-called “Lost Decade” is sadly likely to become the Japanese “Lost two decades”.

The Asian Management Systems’ textbook describes and compares in detail four models of East Asian management systems : The Japanese Keiretsu, The South Korean Chaebol, the Chinese State Owned Enterprise and the Overseas Chinese Family Business.

Chapter 2: Understanding national competitiveness

Questions for discussion :

1. What is the main argument of Weber on Protestantism versus Confucianism in the development of capitalism ?

2. What are the comparative advantages of Confucianism according to Tu ? 3. What is the concept ‘ideology’ and what are the five basic elements of ideology ? 4. Can you identify five basic elements of individualism and communitarism ? 5. What do you personally think is the major contribution of oriental ideology to the economic

miracle of East Asia ?

1) Max Weber is among the first scholars who focused on studying the relationship between religion and socio-economic behavioural patterns. He suggested a link between the rise of capitalism in the West and the Protestant ethic.

Weber held that the Protestant ethic cultivates a specific personality that relinquishes all intermediaries between god and himself as an individual. This relationship promotes a sense of dignity and self-reliance. A protestant is someone who believes in his individual efforts to shape his world and tries to master and transform his environment with a strong work ethic, thus paving the way to individualism and entrepreneurship among Western people. In contrast to transformative perspective inherent in Protestant set of values, Weber deemed that the Confucian ethic tend to exhort its followers to accept and adjust to their environment. According to the scholar, the Confucian ethic teaches how a man should relate to the society in a harmonious way: the Confucians are supposed to act accordingly to a whole set of social formalities, to avoid conflicts and competition, to be others-reliance and to devote themselves to tradition, rulers and elders. All this cultural features are seen in contradiction with the driven emerging forces of western capitalism. 2) The comparative advantages of Confucianism according to Professor Tu are based on the strengths of communitarism society: the self as a centre of strong and lasting relationships, the sense of personal discipline, consensus formation and cooperation, the sense of trust and confidence in the community, the duty consciousness, the conflict avoidance attitude, the great role of education in one’s social development, etc. 3) An ideology is a set of beliefs and assumptions about values that a nation holds to justify and legitimize the goals and actions of its institutions. By other authors the same concept is defined as the collection of ideas that a community uses to make values explicit in some relevant context. Accordingly to Lodge and Vogel there are five components of an ideology:

• Relationship between humankind and society, and between the individual and its group; • Institutional guarantees of those relationships; • Means of controlling the production of good and services; • Role of the state/other political organization; • Prevailing perception of reality and nature (science, myth, religion, philosophy).

4)

Individualism: Communitarism: Self as an isolated independent entity via an atomistic conception of the community; Personal and property rights; Limited state and government’s role and size; Specialization attitude in scientific research and scientific culture

Self as the centre of relationships: these relationships’ network forms the society, not the simple sum of its individuals; High social duty-consciousness and commitment; Priority to community needs over individuals needs; Powerful and authoritative states; Holistic culture and organic whole approach to

analyse and study the real world matters: stress put on interdependence of causes and effects among different phenomena.

5) Hard working attitude and spirit of sacrifice, in my opinion are the most distinctive Confucian feature that have allowed East Asian nations to reach this impressive stage of development in so few decades.

Chapter 3: Sun Tzu’s strategic thinking and contemporary system

Questions for discussion:

1. What is relativism in Taoism and its significance to strategical thinking? 2. Who is Sun Tzu and why is his work so important in understanding Asian management styles? 3. Under what circumstances is military thinking not applicable to a business strategy? 4. What option is most preferred by Sun Tzu in a confrontational situation? 5. Why is moral influence so important according to Sun Tzu?

1) Tao, literally “the way”, is the central concept of Taoist philosophy. All things in the world originate at one source. They are different, but interrelated. And they are continuously changing, like the water of a whirling river. The relativity of Taoism resides here: opposites - long and short, life and death, good and evil, cold and hot - are all Two sides of the same One. In a strategic perspective this Taoist relativity of everything can be exploited, ridden, like a surfer does with a big wave, for commander’s desires and for national interest’s sake. 2) Sun Tsu was a Chinese writer, strategist and commander lived between 4th -5th century B.C. He served the Chinese Kingdom Wu as an appointed general, winning many wars and eventually helping Wu to reach a sort of political hegemony in Ancient China. Its main work is The Art of War, regarded as the most ancient and influential classical of strategic thinking in the eastern world. Throughout history it became a basic book in many east Asian military academies. Today “The Art of War” has been rediscovered and applied as a perfect readings for business management and marketing students all around the world. 3) The main difference between business and military is the following: military deals with destruction and mass-murdering whereas business deals with production and trade of goods and services for people’s benefit. Therefore every useful element of military strategies and tactics should be translated and transferred to business world analysis in/with a non-violent meaning.

4) For Sun Tsu, highest form of victory is winning without even fighting but only by superior strategy. The second best option and the first on the actual battlefield is to conquer the enemy by alliances borrowing strength from one’s allies. In this sense Sun emphasizes to avoid bloody conflicts as much as possible; to win a battle engaging fully its own troops isn’t a perfect strategy, because it is energy-consumption and always risky. Using deception, spies and secrecy are also essential means to achieve the ultimate goal. Planning , knowing the enemy and knowing yourself as much as possible is also determinant for the dooms of war. 5) By moral influence, Sun Tsu meant the way which the people are able to be in good accord with their rulers, for whom they are willing to fight through all the hazards involved in war. “Fighting as one man” is a critical metaphorical achievement for every military leader: this motivational result could be reached only through a deep and continuous commitment of the general to his troops. Thus in order to achieve a positive moral influence a good commander should take care of the interests of his soldiers, exercising benevolent rule and treating them as his own close relatives. If a general treats his men as his own beloved sons, they will stand by him until death, this is the essence of Sun Tsu’s advice.

Chapter 4: Guanxi dynamics and network buildings

Questions for discussion:

1. What are the two dimensions of face in Chinese culture? 2. Can you define the connections and differences between guanxi and renqing? 3. In your opinion what are the voluntary constructed relationships and predetermined

relationships in traditional Confucian society? 4. Can you tell the major differences between the Chinese and Japanese approaches to building

connection networks? 5. How is guanxi related to face?

1) Face is about respect and honour. You can lose people’s respect. Face can be divided into two different dimensions: Lian (personal behavior) and Mianzi (relationship). Lian represents everyone’s dignity, self-respect, mianzi is something different, something valuable that can be achieved after great efforts. The former concerns one’s own social behavior, the latter concerns the status and prestige in the society. If a Chinese doesn’t have lian he will be socially criticized, and if he has no mianzi he will deem as unsuccessful and low status.

2) Guanxi refers to special relationships between two people. It’s an exchange of favors. Relationships tend to be more utilitarian than emotional. Exchange of favors tends to benefit the weaker member more. La (pulling) Guanxi is the most commonly used by the Chinese in network construction. Pulling Guanxi means the effort to establish and build up a relationship with others where there was no pre-existing relation between them. “Walking through the door” show the concept of zouhoumen which means get things done through personal connection networks in mainland China. Renqing, it’s the art of relationship management. It can be defined as a humanized obligation. Renqing is more sociable than emotional. Renqing involves socials exchanges; there is an inherent obligation for people to keep equity in mind. It‘s also kind of favor with the inclusion of sentimental element. Obligation has to follow the role of equity. 3) Confucian is mainly concerned with the question of how establish a harmonious hierarchical society order. You should interact with the others under the guidance of “ren”, which means benevolence and humanness. Ren refers to the way people relate with each other. There are five relationships and their appropriate characters are:

• sincerity between father and son • righteousness between ruler and subject. • distinction between husband and wife • order between brother and sister • faithfulness among friends

The voluntarily constructed relationships are:

• Jia: family • Dajia: big family also includes non family members • Guojia: country, family

Confucian ethics attachs great importance to the cultivation of the individual, group orientation and a dependence on guidance. 4) In Japan, relationships are based on the collective group with the consanguinity and the concept of “ie” rather than in China, relationships are pre-determined according the Confucian ethics. Chinese social groups tend to be formed under the guidance of attributes while the formation of social groups based on fixed frames is typical of Japanese social structure. Unlike Japanese, the Chinese can have pluralistic identifications with other individuals or social groups based on attributes they share with other individuals or social groups. Unlike the Chinese, the Japanese are much less dynamic in building up their own guanxi networks. They tend to subject their individual relationships with their organizations because they are basically frame-dominated. Culturally, many Japanese regard the

sentiments of guanxi as old-fashioned and too traditional. Compared to the Chinese, Japanese are also much more conscious of the downside of guanxi networks. 5) The relationship between guanxi and face is intertwined and complicated. Face has two dimensions, Lian and Mianzi. If one does not follow the rule of guanxi, one loses in both dimension; if one follows the rule of guanxi carefully, one gains in two dimensions. In term of establishing guanxi, the connection network, seems to have a more direct relationship with mianzi. The more mianzi one has, the easier it will be to establish and develop one’s relationship. If a Chinese has no mianzi at all, he is virtually deprived of the right to establish and develop a connection network. It’s possible to lose its face and it is morally criticized. But if a man agrees to help, he will naturally gain face with regard to the requester. Next time, if he needs help from that person, he will be able to use his face. If a man refuses to help for some reason, he naturally loses his face with regard to the requester. Next time, if he needs help from that person, he must first regain face by doing something special for him.

Chapter 5: The overseas Chinese: their origins and operational environment

Questions for discussion:

1. What was ‘piggy-trade’ in the last century in Southeast Asia? 2. What is the implication of the term nanyang huaqiao? 3. How do you assess the overall operational environment of the Chinese in Southeast Asia? 4. What are the key commonalities of the overseas Chinese? 5. In your opinion what factors have been the major influences on the acculturation process of

the overseas Chinese? 1) In the last century in Southeast Asia, some of Chinese were kidnapped or forcibly enrolled, before to be sent in Southeast Asian countries to work in mines, caves, harbours and plantations because colonies authorities needed labour. It was a kind of slave trade. 2) This is the name given to those who settled in Southeast Asia. Huaqiao in Chinese also implies that Chinese are sojourners who will eventually return to China before their death. But it wasn’t sure because Chinese emigrants were considered ‘disgraced of the nation’ before and they can be punished. One kind of punishment was the death. 3) It was difficult for the overseas Chinese to integrate in the native economy because the Government preferred to prevent their economic and development so they created discriminating policies in order to limit the Chinese business. Nevertheless, the overseas Chinese succeeded to emerge with their own traditional economic system especially thanks to their network community and their values of life. But it was not the case in Thailand because the culture is based on Buddhism and they even created a Sino-Thai community.

4) The overseas Chinese in major ASEAN countries:

• Are the minority ethnic groups (except in Singapore). There have been racial massacres in the past. Lot of government creates some racial laws against Chinese overseas in order to protect the citizen of the country and limit the expansion of the Chinese.

• Encourages cooperation and business networks • Using the mixture of the overseas Chinese economies with native economies • Powerful Chinese community: traditional network systems with guanxi (helps to consolidate

their co-operativeness) • Use not only the blood relationship but also the geographical relationship • Chineseness: has become a powerful unifying force • Culture: Confucian value of family, hard work, value of chasing and accumulating material

wealth and money • Immigrate to avoid the poverty. To become labourers and not traders

5) I think we cannot really talk about acculturation because the overseas Chinese continued to follow Confucian principles. That’s mainly why indigenous have so many problems with the overseas Chinese because they continue to keep their values. It explains why the overseas Chinese succeed in these countries. So the affected governments set up some measures to limit the expansion of Chinese in their national economies.

Chapter 6: The Chinese Family business: organizational challenges and competitive edge

Questions for discussion:

1. Can you describe the key organizational features of a typical CFB? 2. Why do you think factionalism is an inherent problem in CFB's? What does it mean when the

leadership style of CFB's is described as didactic? 3. What options do you have to consolidate your position as a professional in a CFB? 4. In what areas do you think CFB's need to modernize the most?

1) The typical organizational structure of a CFB could be described as a familiar business typified by a closed family ownership and small size with a simple, flexible and informal structure. The leadership is authoritarian and paternalistic. Ownership and management are merged. The decision-making process is centralized, top-down, swift and intuitive. Management control is based on loyalties criteria and a subjective assessment mechanism. Loyalty is rewarded over competence. The company’s external relations are complex, dynamic and effective because they rely upon a social network of interpersonal ties (guanxiwang). 2) Factionalism is a relevant problem for the CFBs because it leads to conflicts and struggles among different cliques inside the company disrupting the internal cohesion and consequently weakening

efficiency, productivity and effectiveness of the whole business. This tendency is manifested particularly when the previous owner passes away, the second generation succeeds and begins a process of internal fragmentation caused by the strifes among the different heirs’factions. This trend is usually aggravated by the advent of the 3rd generation. Therefore it’s not surprising that a CFB rarely survives more than a century. 3) A “didactic leadership style” is a kind of business leadership where the boss controls all the relevant business information and transmits them piecemeal to subordinates so that they become dependent and unable to outperform him. That’s the CFBs’ case. In this model the subordinates have to frequently ask the leader for instructions and advices. Anyway the amount of information given to a specific employee depends on the owner’s degree of trust in him. The goal-setting is considered as a family affair, shrouded by secrecy. 4) Professionals can follow 5 ways in order to improve their condition/position in a CFB:

• Marring themselves into the family pedigree, gaining quick promotions; • Controlling the skills essential to the functioning of the company • Enduring long term repression until they eventually win the trust of the boss

acquiring • the status of honourary family member • Packing up and leaving the company

5) CFBs’ model mostly has to modernize in the field of the Human resources management and in the decision making process in order to promote: personal creativity and talent, sharing of power and responsabilities, integration of the subordinates, employees’ involvement and identification in the firm’s goals.

Chapter 7: Competitive Chinese business strategies in ASEAN

Questions for discussion:

1. According to Limlingan what were the major comparative advantages and disadvantages for a Chinese businessman in entering the Southeast Asian market?

2. What are the chief advantages of using low-profit-margin/high-turnover strategy? 3. From the rise of the Salim Group what insights did you get on overseas Chinese business

advantages? 4. How do you assess the role of Multi-Purpose Holdings in the development of Chinese business

in Malaysia? 5. How do you evaluate the Chinese deal-making skills? Are they uniquely Chinese or can they be

transplanted to other business groups?

1) According to the author, the major advantages and disadvantages for a Chinese businessman in entering the Southeast Asian market were:

Advantages: Disadvantages: - Chinese business community which is a social organisation “designed to promote and facilitate business activities”: Chinese Business Network. It’s also an exclusive and useful resource base of reliable business informations; - The powerful Chinese Chamber of Commerce: the chamber represent the interest of the Chinese community as whole; - Indigenous business are excluded from these network, so they can’t compete effectively with Chinese business man; - Great demand for intermediaries - Mutual trust within the Chinese community

- Lack of transportation systems; - Racial rivalry and ethnic intolerance against ethnic chinese; - Developed the business outside the original Chinese community - Official policies of the local governments favoured indigenous competitors -Their potential clients favoured indigenous competitors because they were an unpopular minority group - West firms and state owned entreprises controlled major quotes of market share.

2) The chief advantage of using this strategy is to sell a lot of products thanks to the low-profit-margin (which it gives low prices, because the company decided to reduce his margin on the selling price). In one hand the profit is reduced, and in another hand the turnover increases, and the company can produce more and faster with more profitability (thanks to the economy of scale). Thus, the company can sell faster his products. 3) You need to have good ties with the government and seize the opportunity when you get one. It’s the case for Liem. As a matter of fact, he kept good relationships with the government even when this one changed. You need to be ambitious and diversify your sector and especially be attentive the changes. You need to adapt your strategy according to the sector where you want to start up the business. And finally you need to know where the potential customers are and what they desire.

4) MPH is a parallel business organisation set up to help Malaysian ethnic Chinese to establish themselves as industrialists. From its inception (1975), MPH maintained close ties with Malaysian Chinese Association, the political party representing Chinese community’s interests in Malaysia. Unlike is counterpart PNB, MPH had a much more diversified financial source (investors from Singapore, international banks, wealthy chinese families).With these diverse sources, MPH became a super-organization, promoting the interest of Malaysian Chinese without causing much outcry from the Malays.

5) One key concept to understand deal-making process is the deal itself. It refers to business informal activities practised to correct unexpected deviations in the market environment. Another advantage is the ability to operate in its underdeveloped legal environment. The overseas Chinese excel in risk-taking. The Chinese business framework of the cash generation cycles provides a further competitive

advantage in deal-making. Deals can’t be programmed in advance so the business man needs to keep cash on hand or be able of raising cash on short notice. To get cash quickly, a Chinese is focused on accelerating the cash generation cycle. This accelerating is conducive to a fast turnover. The period of “money sleeping” has to be short as possible. The sleeping money can be quickly transplanted to other business groups. Many Chinese business men took advantage of the liberal credit terms of Western Multinational Corporation by dumping their products in the market for cash.

Chapter 8: The evolving environment of the Chinese state enterprise

Questions for discussion:

1. How important are large and medium-sized state enterprises to the Chinese economy? 2. What are the key characteristics of the Soviet centralized system of macro management as

reflected in China? 3. What are the four administrative bodies responsible for the distribution of goods in China

before the reform? 4. How do you assess the progress of China’s marketization? 5. Do you think the Chinese Government will eventually have to give up ownership in order to

revitalize state enterprises?

1) Large and medium-size CSE’s have been at the centre of China’s economic development; for istance in 1992, China had 11 000 large and medium-sized state enterprises, that means 2,9% of all industrial enterprises. Together, they made up nearly 50% of China’s total industrial value and 67% of the nation’s tax value. Nevertheless in last two decades their supremacy is slowly declining to give way to new forms of privately run-businesses.

2) The China government adopted the Soviet centralized system of macro-management organized around a network of several branches of industry. Each industrial branch was managed by a hierarchy of authorities. In 1950s transpired many deficiencies of the centralized management system. So the government decided to undertake a decentralization process. Thus decision makers at the local level were granted greater independence in the area of production. Provinces were allowed to plan industrial development on a territorial basis. However this shift from central to local only transferred the competencies to a different level of the state bureaucracy, giving neither effective independence in the choices of factories’ managers nor a price/cost-oriented mechanism in production and commercialisation of their output. 3) The four administrative bodies in charge of the general distribution of goods were:

• The Ministry of Commerce. Its role was the distribution of manufactured consumer products; • The National Federation of Supply and Marketing. Its role was the distribution of agricultural

and agricultural sideline products; • The Ministry of Food. Its main duty was to distribute grain and edible oil; • The Ministry of Materials. Its principal task was the distribution of machines and materials

used in the production process (physical means of production) and divided in 3 categories: widely-used key materials; specialized key materials and materials under local distribution.

4) We also notice that consumer market and others markets have achieved various level of development. Moreover the system of supply and demand improved, greater varieties and quantities of goods have been supplied to the market. In 1989, we observed the rise of a new competitive pressure on SOEs, that challenged to reform themselves deeply. Another change was the slow introduction of management and companies run by private shareholders. Three types of enterprises cohabited in the Chinese economy: states-owned, collectives and privates. The last change was occurred when the Chinese government readjusted and promulgated a series of policies, especially financial and taxation policies. 5) The future of Chinese SOEs-central government relations is uncertain and hardly predictable. There are many paths that could be followed depending on the internal and international pressure on Chinese business environment as well as on the future political choices of the Chinese ruling party. Many scenarios could be portrayed, but personally I deem that the central government will always back and influence CSEs in some way, in order to keep its power on Chinese fast-growing economy. It’s highly unrealistic that a so strong long-lasting autocratic ruling class will give all his support to free market forces, without influencing or intensely regulating them.

Chapter 11: Government business relations in Japan and South Korea

Questions for discussion:

1. Why have both Japan and South Korea developed strong government-business relationships? 2. What are the major players in the triangle of business-government Relationship in Japan and

how do they interact with each other? 3. How do you evaluate the rule of MITI in Japan’s industrial Policy-making and implementation? 4. Why has the relationship between the Korean Government and businesses been defined as an

unequal partnership? 5. After governmental reforms in both Korea and Japan, do you think that the government-

business relationship will experience fundamental change in either country?

1) They have developed a strong relationship with state authorities because the government had an active role in the rapid industrialization process since its beginning. The active role of governments played was determinant in bringing such dynamic economic growth. Their willingness to collaborate with the government can be explained with two arguments. First, they are both patriotic countries. Second they have learnt through the experience that such collaboration can bring real material benefit and a contrast can carry on serious damages to their profitability . In Japan, the reform measure in the Meiji restoration period laid the bases for a strong role of the government in the economy by allowing the state to borrow private capital and invest it in the development of strategic industries. The Government intention was a benefit for emerging modern industrial firms but also brought the active support of big business to the government. In Korea, business firms that had developed a close relationship with the government received strong support in developing their business through public grants, privileged financial channels and fiscal exemptions. 2) The three major players in Japan politics have developed extensive channels of communication in their triangular relationship and they are mutual interdependent.

• The Bureaucracy: the Ministry of International Trade and Industry, founded in 1949, is the powerhouse in Japan economic policy-making (it’s mainly responsible for Japan industrial and international trade policies). But also the Ministry of Finance controls important tools to implement industrial policies (budgetary process, tax measures, public spending).

• The Business world (Zaikai): It represents the peak associations of big business including Federation of Economic Organizations, the Federation of Employer’s Association, the Committee for Economic Development and the Japan Chamber of Commerce and Industry.

• LDP: The party is a coalition of various political factions that are seeking representation and seats in the national Cabinet. LDP leader should be able of raising the necessary funding to win support from the bas. Since the post-war until 2005 LDP had always been successful in winning every general elections in Japan.

There are frequent formal and informal consultations among the three players. Their communication is made easier by the fact that the majority of the elite members are recruited from Tokyo University. Trade and industry associations constitute another channel of communication and lobbying . The LDP assumes a central position and plays the role of a referee: It holds the triangle together. 3) The MITI was founded in 1949; it is the most important institution in Japan’s industrial policy-making process. The ministry is responsible for: constructing the structure of industry and adjusting dislocation, guiding the development if industries and their distribution activities, co-ordinating Japan’s foreign trade and commercial ties and finally managing specific areas such as raw material and energy to supply industries, small businesses. The MITI has one rival who is the Ministry of

Finance (MOF) which his role is to control important tools to implement industrial policies, ranging from the budgetary process and cheap government loans to selective tax measures. 4) It’s an uneven relation because ROK’s government has a unique dominant position in business relations within the country, taking up several functions: competitor, customer, caretaker, regulator, supporter. It’s involved actively in leading economic development of the country setting up national strategic plans to identify priority industries and business sectors to fund and foster through its budget and its legislation. Controlling commercial banks and manipulating interests’ rates, the economic and monetary authorities can influence the credit leverage. Also the fiscal leverage is often usedby public authorities as a mean of business management. Moreover the ROK’s government determines directly which company should enter specific sectors of the economy and which shouldn’t. Private companies often needs the effective approval of the government to start up. For all these reasons it’s clear that the South Korea has a dirigist economic policy. 5) I deem that the government-business relation’s strength won’t get looser in the close future: the firms need the aid of the government to grow steadily and quickly in a favourable political environment. Nowadays, the one described is a symbiotic relationship in which the two governments cannot live without Chaebols and Keiretsus because of their importance for the economic strength of the country and Chaebols and Keiretsus have never been able to survive without the government strategic, financial and fiscal help. This facts will result in a new collaborative path between the reformed governments and the big business of the two nations.

Chapter 12: Comparative large Japanese and Korean Business groups

Questions for discussion:

1. What are the major structural differences between Zaibatsus and Keiretsus? 2. How is a Chaebol structurally similar to a Zaibatsus? 3. How does ie differentiate the Japanese from the Korean companies? 4. Compare the functions of the presidential club of a Keiretsus with that of a chairman’s office in

a Chaebol? 5. Describe the three ownership structures of Chaebols.

1) The Zaibatsus ownership structure resembled a pyramidal mode in which Zaibatsus families owned a large portion of the stock of the holding company which in turn owned a large portion of the stocks of the first level subsidiary and affiliated companies, and so on. After the World War II, Zaibatsus became the target of the Allied Forces Supreme Command. The dissolution of the Zaibatsus imposed by Americans was focused on depriving them of their ownership

interest and management control in banks, subsidiaries and affiliated companies. To prevent their reestablishment the Allied Forces Supreme Command instituted anti-monopoly laws. Post-war born Japanese business group, Keiretsus were structurally different, even if some corporate brands, owners and linkages were the same of the formers. The pattern of ownership change from a hierarchical system, in which the owning families controlled the stocks of the holding company, to a horizontal interlinked one, which in the stocks were cross-hold by the companies within Keiretsu in order to guarantee interdependence and stable mutual ownership. Each Keiretsu is organized around a major bank and a general trading company, the governing body is a presidential club, which consists of the CEOs of member companies with mutual ownership of stocks. 2) The second type of Chaebols is similar to traditional Zaibatsus. In fact, the structure is the same. The owner family possesses a holding company which runs the affiliated subsidiaries. The only difference is that management and ownership were more separated in Japanese Zaibatsus’ companies.

3) The Japanese concept of ie consists of two meanings. The first meaning is the idea of family based strictly on consanguinity (blood relationship). The second in a broader sense includes in the core-family both natural blood relatives both adoptive relatives. Therefore in the Japanese culture the heir of a given property is not necessarily a consanguineous.

On the contrary the Korean concept of family is strictly based on blood relationship. The inheritance is carried out with the eldest son enjoying priority and other members of the family having their due share. Only a residual 10% percentage of all business inheritance is to non-family members.

4) In a Keiretsus the leading role is played by the presidential club. The member companies of the club of the presidents are usually large banking, finance, trading, real estate, and manufacturing corporations. The purpose of the club is to share information on economic conditions and other business matters. The exchange of opinions between company presidents is often carried out in order to establish new enterprises and high-level personnel matters in member companies. The presidents’ club does not influence directly on decision process in member companies but fulfils an important role in decision-making related to the common interest and strategic guidelines of the group.

The major function of a Chaebol’s chairman is basically to run directly the company and the affiliated companies or the subsidiaries. It’s very common to find family members of the Chaebol’s owner sitting in this position.

5) Chaebols groups are comprised of many affiliated companies. They are generally much younger and smaller than their Japanese counterparts. Many corporations are still owned by the founders’ family members. The family ownership of Korean Chaebols can be classified into three types:

• Direct and exclusive ownership, where the founder or his family members owned all the Chaebols affiliated companies (the oldest thype).

• Domination of the holding company in which the founder or his family member own the holding company, which in turn controls the largest share quotes of all subsidiaries and subjected enterprises (the current most common thype).

• Interlocking mutual ownership, where the founder owned the holding company and some kind of foundation, which in turned owned the affiliated companies (the likely future model).

Chapter 13: Japanese management style

Questions for discussion:

1. What is the unique relationship between shareholders and professional managers in Japanese companies that give the managers a competitive advantage?

2. What is so important about bucho dairi in the hierarchy of Japanese companies? 3. Describe the dynamics of namawashi and renjiseido. 4. What are the advantages and disadvantages of lifetime employment and seniority-based

promotions? 5. What is so unique about the Japanese union system?

1) In Japan, shareholders have very limited power. Contrarily to Western large corporations Japanese corporate managers has a strong influence on the ownership of the company. The board of directors in Japan consists of inside members. They are selected from the senior executives of the company. So shareholders rarely interfers with the company’s management. 2) The bucho dairi is the correspondent of a department manager in the US companies, but he often commands the same level of respect and prestige as the president of a small-size company. 3) Nemawashi is a communication process which goal is to collect opinions from workers and then use it in order to have the best results. The rengi seido occurs when a manager has a decision and speak about this proposal with people are directly affected by it. So the proposal is forwarded to all relevant offices. Each will make comments on a sheet attached to the back of the proposal. The decision will be made by top management based on the comments from all people involved in the process. 4) There are many advantages of a lifetime employment. The employee spend their all working life in the same enterprise and they expect to do so. For this reason the employee is really devoted to its company and tries to make it more competitive. There are some practises to implement it such as the quality circle and the suggestion system. On the other hand the main disadvantage is the following:

when a company recruiting a new employee, the firm has to be extremely cautious because a mistake in recruitment can be expensive and difficult to correct it. The advantages of seniority based promotions are that employees are rewarded by the number of working years in the same firm, ending up in a major motivation to stay along in one company. The seniority promotion is under pressure to change : junior workers are impatient with the senior promotion because they want to be promoted faster. So the job-hopping is nowadays more acceptable and the rate of alternative employment is increasing faster. In fact its main disadvantage is the lack of merit-rewarding criteria in this promotion scheme. 5) The Japanese union system is so unique thanks to the interdependence between the company and the union. All employee may participate in the union and there is no real distinction between white and blue collars.

Chapter 14: Developing competitive advantages of Japanese companies

Questions for discussion:

1. According to Kono what is a typical process of the strategical planning in a successful Japanese company?

2. Describe the JIT system. Can an American company follow the same system? 3. Assess the R&D practices of Japanese businesses. 4. Analyze the advantages and disadvantages of aggressive financial policies.

5. How do you view the economic dual structure and its advantages and disadvantages to large

Japanese companies?

1) According to Kono a typical process of strategical planning is divided into 5 basic phases.

Phase 1: establishing premises

The corporate goals and philosophy are constructed and revised by taking into consideration the opinions of stakeholders. Past performance is evaluated and problems specified. The future competitive positions of the company are projected.

Phase 2: clarifying issues

Levels of aspiration of the goals are determined on the basis of the clarification of the above premises and performance-result key areas are forecasted. A comparison between the forecast performance and the aspiration level is made to discover if any significant gaps exist.

Phase 3: long range strategy

New product-market strategies are pursued for closing the gaps between forecast and aspiration. Cost reduction of existing products and business expansion is researched. Investigations will be conducted to see if the future gap can be closed. If the gap is not closed, the above process will have to repeat and new research will be conducted.

Phase 4: medium-range planning

After the long range strategy is decided, medium-range goals and guideline are established and medium-range plans are made. This plan consists of three parts: medium-range project planning, planning by product groups and corporate functional planning.

Phase 5: short-range planning, implementation and appraisal of performance

2) The JIT system is a system where Japanese management system can facilitate productivity experiments; redundant workers can be transferred to other factories. The same attempt to maximize the utilization of the worker’s potential. The JIT is not possible without the sacrifices of small contractors, who bear the cost of warehousing and carrying parts until large companies need them.

An American company could hardly follow the same system because their business culture is intrinsically different from the Japanese system.

3) One out-standing feature of Japanese companies has been their increasing commitment to R&D projects. This investment could explain the reasons of the high rate of technological absorption. Investment by Japanese companies in the R&D of key technologies has substantially increased since the early 1980s. They reinvest the bulk of their net income in their own enterprise especially in the R&D department.

4) An aggressive financing strategy implies a firm will finance part of its permanent assets and all its current assets using short-term funds. This is in contrast to the practise of matching or conservative financing. Matching uses long-term funds to finance permanent current assets and short-term funds to finance temporary, current assets.

On one hand (advantage) a company generally benefits in ROI and profitability from an aggressive financing strategy. Short-term funds are less expensive to purchase across the board, so funding costs can be lower. Thanks to the high leverage, the company can undertake many experimental and risky projects as well as start up new lines of production easier and faster.

On the other hand (disadvantage) this policy also creates a great risk of illiquidity and some studies have even found a long term inverse relationship between aggressiveness and profitability.

5) The hierarchical business structure in Japan goes as follow: every big company resembles the top of a giant pyramid. These are the corporations whose stocks are traded on the Tokyo Stock Exchange

and have well-known trademarks. Many are members of the large Keiretsus groups. One level below these companies is a few dozen direct subsidiaries. One level down, there is 100 or more “kanren” companies and under this, millions of small subcontractors companies.

Chapter 15: Managerial styles of Korean companies

Questions for discussion:

1. What are the unique points in the organizational structure of a Korean company? 2. Can you identify the four manager groups in Korean companies? 3. Can you briefly describe the decision-making style of Korean companies? 4. What changes have taken place in the union system in Korea? 5. Can you assess some of the manufacturing development strategies of Korean companies

discussed in this chapter?

1) There are some distinctive features in the organizational structure of a Korean company. First authority is concentrated in senior levels of managerial hierarchies with important decisions, such as financial choices, entailing kyul-jae, a formal Korean process of approval from top levels of management involving many personal validations. Second, most Korean firms show a “tall”, vertical structure of organization. Their vertical and hierarchical control is supported by strong functional supervision from staff like strategic planning, finance and HRM. Third, they usually do not employ personal staff, except the group chairman’s assistants . Fourth and last, workers’ individual roles are not clearly structured and defined in many Korean businesses ; they do not have clear-cut job descriptions. 2) There are four main informal types of managers in Korean firms:

• Founder and his family members: chairman and top executives of the company • Hyul-yun: blood related managers at the top of the hierarchical structure of power; • Ji-yun: region related managers, based on geographical ties between the top management and

mid-level executives; • Hahk-yun: school related managers, close business founder’s schoolmates frequently become

future officers of his company.

3) In the traditional Korean family, the father is the unquestioned and respected head, having almost absolute powers in family matters and decisions. One relevant legacy of such a family tradition for business leadership in Korean enterprises is the strong authoritarian style of superiors in the managerial process. Top-down decision-making, centralized decisions, paternalistic behaviour of the chairmen against his subordinates are all typical attributes of business decision-making process in

South Korea. Nevertheless this authoritarian style is not despotic: Korean managers try to keep the needs and feelings of the dependents in minds through an harmony-oriented leadership. To achieve Inhwa (Korean concept for harmony between unequal) managers have to develop good relationship, mutual trust, informal consensus formation with employees and subordinates.

4) After the Korean War, American-style labour-related legislation guaranteeing the worker’s rights to organize and to bargain collectively was enacted. The government-dominated Federation of Korean Trade Union (FKTU) helped employers control workers. Throughout the 1960s and 1970s, the Korean authoritarian government upheld a policy of growth first and distribution later and suppressed the labour movement. Then, in order to control the power of trade unions, it banned industry-wide national unions in 1980, replacing them with ‘enterprise unions’, which were managed by labour-management councils. The political reform of 1987 removed any government intervention in union policies, allowing workers to re-establish industry-based national unions. The previous Trade Union Act was amended to protect workers from unfair labour practices by employers. As a consequence of 1987 reforms, trade unions have been growing, actively promoting increased wages and improved working conditions.

5) In the first period of development, many Korean companies followed the strategy of choosing the growth/maturity stages of products. By taking advantage of the governmental import-substitution policy, most companies selected and concentrated on growth/maturity-stage light manufacturing consumer goods, which required a labour-intensive production. This strategy significantly decreased potential market risks, typical of new born products. By doing so, Korean manufacturing industries quickly became strong competitors for cheap-labour intensive products in the international markets. Large companies purchased and imported western and Japanese technology in the form of turnkey plants, consultants and licensing, as small manufacturing enterprises upgraded their products through reverse engineering of locally available foreign products. Another important manufacturing strategy implemented by Koreans was the continuous attempt to reduce the total project completion period by a non-stop effort in abating times of production.