Media  International Exchange  2019.09.25

Rapidly changing Chinese market: Japanese companies are apparently lagging behind. ~What are some differences between Japanese companies and Western companies that are ambitiously investing with more caution?~

The article was originally posted on JBpress on April 19, 2019
1. The essence of failure created by the Japanese Government during the prewar period

The former Ambassador to the People's Republic of China Yuji Miyamoto published an excellent book in March entitled "Nitchu no Shippai no Honshitsu (the essence of failure created by Japan and China)."

I have been furnished with frequent opportunities to learn about Miyamoto's unwavering dedication to improving Japan-China relations, his extensive relevant experience and his coolheaded analysis of situations from a broad perspective.

I am deeply indebted to Miyamoto who has consistently mentored me since my stay in Beijing from 2006 to 2008 when he was the-then Ambassador to China.

In Chapter 1 of this book, Miyamoto indicated that the declaration of war against the US was the most erroneous judgment that Japan could have made during the prewar period; it simply underestimated the enormous capability of the U.S. He explains however that this miscalculation fundamentally originated from issues concerning China.

Japan failed to correctly understand Chinese nationalism and formulate an appropriate policy to adequately address it, leading to an extension of the front lines in China which resulted in the fatal mistake of waging war against the U.S.

This is because Japan lacked the substantial feelings of national remorse and desire for peace that was prevalent in Western countries following World War I. Japan was essentially acting as if it were a runner that was one lap behind.

Indeed, it can be said that Japan was so obtuse as to not sufficiently understand the important changes that had taken place in the international community during the interwar period. Japanese society had adopted an inward attitude that can best be described by the saying "He who stays in the valley shall never get over the hill." As a result, Miyamoto analyzes, Japan committed the grave mistake of waging war against the US.

I share his understanding of history.

It is often said that people usually only see that which pleases them and conveniently overlook that which disturbs them.

By contrast, experts have more comprehensive insight into things that ordinary people don't see and thus don't consider. In short, they can see the dark side of things. For that reason, we call them kuroto (who sees the dark side of things) in Japanese.

During the prewar period, the Japanese Government surprisingly had no system in place where experts who were knowledgeable of international affairs, and thus capable of making accurate judgments on how the country could best navigate the international system, could offer their views and opinions. This is the essence of the failure created by prewar Japan and might have prevented the country from making the disastrous decision to launch the Pacific War.

2. The essence of failure created by Japanese companies in their businesses in China

What Miyamoto emphasizes in his book is the overall failure of the Japanese Government to reasonably adapt to changing international circumstances during the prewar period.

Considering this however, the moment that I read the passages "Japan failed to understand the perception of Western countries, and was essentially acting as if it were a runner that was one lap behind." and "Japan was so obtuse as to not sufficiently understand the important changes that had taken place in the international community during the interwar period. Japanese society had adopted an inward attitude that can best be described by the saying "He who stays in the valley shall never get over the hill," I got the feeling that, as applied to business, the failure of the Japanese Government at the time shares many commonalities with present-day Japanese companies in China.

This issue is relevant not only to prewar Japan but also to present-day Japan.

The Chinese economy experienced rapid structural changes after 2005, making the transition from an investment and export-led economic model to a domestic demand-led model in just a few years.

Along with this, the country also recorded a dramatic increase in income levels on a dollar basis. During the 2010s, in conjunction with the rapid expansion of the middle-income class, demand for products and services made by companies in developed countries expanded relentlessly every year.

Western companies that became aware of this transition deployed competent staff and made enormous investments in China, exerting the requisite effort to cultivate the Chinese domestic market. In the end, they raked in massive profits.

On the other hand, resulting from the occurrence of the territorial dispute over the Senkaku Islands in 2012, Japan was afflicted with its worst relationship with China since the end of the World War II, with strong anti-Chinese sentiment dominating the country.

In conformity with this national sentiment, the Japanese media hardly reported anything positive about the Chinese economy, opting instead to focus only on negative elements.

Japanese companies accepted these reports without question and persistently took an extremely cautious and backward-looking view on business in China.

For the last two to three years, as Chinese companies have grown more competitive, many Western companies have become increasingly wary of both these companies and the Chinese Government, investing in China with a greater sense of caution.

This, however, is not applicable to global corporations from Western countries that are endowed with strong technical competitiveness and who excel in the creation of markets. They engage in business in China and generate huge profits every year. Therefore, in spite of the prevailing negative atmosphere, they have continued to maintain active engagement in business in China.

The trends in foreign direct investment in China by country demonstrate that the US, Germany, the UK and France all invested more in China in 2018 than they did in the previous year.

Most major Japanese companies are not aware of the business behaviors of major global corporations from Western countries and simply tend to believe what the media reports without question. They then wrongly conclude that global corporations from Western countries are also negative about investing in China.

This attitude is exactly the same as that of the person "who stays in the valley" and who is so obtuse that they do not understand changes in the international community, choosing instead to pursue their own inward-looking interests to their overall detriment.

The above-mentioned nature of the Japanese, which constituted the essence of failure that gripped the country in the prewar period, has seemingly been passed down to the present generation of political and business leadership, changing only in form. It has lamentably infiltrated the way that Japanese think and behave.

3. Top leaders should be decisive and have the ability to get things done

In the last Chapter of the book, Miyamoto makes a number of valuable proposals for the construction of peaceful and stable Japan-China relations. I would like to highlight the following passages among them:

"In order to overcome the great diversity of pending issues between Japan and China and advance bilateral relations, the political leaders of both countries must first of all demonstrate their strong determination to that end."

"Second, we should unearth as many positive elements of Japan-China relations as possible, infuse life into them and instill them into society, thereby improving the environment where the thoughts of leaders can be put into practice."

"Leaders should meet frequently. This would conceivably impart a substantial contribution to the settlement of problems and the improvement of the atmosphere between the two countries."

By reading this passage, I realized that what the Japanese Government should do to improve relations with China seemed to overlap with solutions to problems that Japanese companies have been confronted with in regard to China.

I always stress the following points as essential conditions that Japanese companies must meet to produce satisfactory results and succeed in business in China.

Heads of companies themselves should visit the front lines of business in China more than six times a year in order to gain a clear understanding of customer needs and problems that their products might face in the local market. They should demonstrate a strong determination and outstanding ability to get things done, directing their company to undertake drastic reforms so that their management structure can be transformed into one led by local marketing in China.

Miyamoto and I share views and opinions that attach importance to the necessity of strong leadership from the top leaders of organizations, practical approaches developed taking the conditions at the frontline into account and frequent visits by top leaders to their sites.

These are actions that should be taken by both the Japanese Government, which aims to improve Japan-China relations, and Japanese companies which intend to succeed in business in China.

4. Train future leaders to overcome the essence of failure

By comparing and contrasting the essence of failure created by prewar Japan and present-day Japanese companies that engage in business in China, we can establish the general problems of the Japanese who "stay in the valley" and who are so obtuse as to not understand changes in the international community and adopt an inward attitude.

Universal measures not to repeat the same mistakes are to enhance the leadership abilities of top leaders and to attach more importance to the views of people on-site in order to reach accurate judgments and make the right decisions.

Whether it is for the policy management of the Government or the management of companies, the essence of failure created by Japan has always been the same in any era or in any organization. The Japanese must take this to heart.

To resolve problems, however, requires that the Japanese to do something more than simply taking this to heart.

It is indispensable that top leaders devote themselves to the improvement of leadership qualities appropriate to their positions and to thoroughly adopt a policy that attaches importance to the views of the people on-site after they assume a leadership position in the company.

Unless they are endowed with that character, they are unfit to be top leaders. Therefore, the Japanese themselves must exert efforts to train future leaders to overcome the essence of failure.

To develop that character, children must receive moral education during their primary and secondary school education.

To ultimately address the essence of failure in order not to repeat the same mistakes, the Japanese must take drastic measures to reform the primary and secondary school education system of the country. Although it looks like a roundabout way to resolve the problem, in reality, it is the quickest way to that end.

It is extremely difficult to lead people to change their way of thinking if they are over 40 years old and have their own way of thinking, or to drastically reform the culture of large companies that have an integrated internal management system to which their employees are fully accustomed. It would take more than 10 or 20 years to accomplish such task.

Compared to this, to train a person who can easily absorb new ideas or to establish a new organization in which members share a common vision from the outset would take comparatively much less time. What is more, they would be thoroughly schooled in concepts.

Given the essence of failure created by prewar Japan or solutions to problems which Japanese companies face in their business management and operation in the era of globalization, moral education for children who will lead future generations is the main determinant that will shape the future of Japan.

Primary and secondary school education should not be designed to require all children to work only for the improvement of their deviation values which are calculated based on the uniformed standard set by the state. They should be educated in a way in which teachers understand the nature of each child and develop their character. In that sort of educational environment, we can bring up future leaders who will be selfless and always make the utmost effort to serve others around them, including the greater society. This is the fastest and most effective way to ultimately resolve problems associated with the essence of failure created by Japan.

You may wonder if this is sufficient enough to prevent the Japanese from being the proverbial person who "stays in the valley" and who is so obtuse as to not understand changes in the international community and adopts an inward attitude. I am convinced that it is sufficient.

In this global society, anybody who has the ability to satisfactorily carry out their work is required to work directly with foreigners in a vast array of fields, such as politics, economics, academics and culture.

Leaders of character would not try to escape from the problems that Japan finds itself confronted with in today's global society.

Inevitably, they would think globally and become conscious of international affairs. They could not be someone who stays in the valley. Leaders who accomplished the Meiji Restoration possessed great abilities to look at things from an international perspective, which originated from those attitudes towards the world.

We should remind ourselves of the initial aim of education. Drastic education reform must be urgently initiated to establish a primary and secondary school education system that attaches importance to the development of children's character.