Tezuka, H. (1997) Success as a source of failure

Tezuka, H. (1997) Success as a source of failure - Success...

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Success as the Source of Failure? Competition and Cooperation in the Japanese Economy Hiroyuki Tezuka Will the Japanese business system^ based on favorable industrial policies, the keiretsuy and lifetime employment, survive the current recession^ While sim.ultaneous competition and cooperation among companies have fostered growth and a system without ''losers, *'fundamental changes may require an upsurge in risk-taking Japanese entrepreneurs. T he Clinton administrations pressures on the Japanese government in 1995 to increase U.S. companies' share in Japan's automobile and auto parts markets and Eastman Kodak's accusation that Ftiji Film uses unfeir competitive practices in the Japanese market are the latest in a long series of asser- tions that Japanese companies collude with each other and with the government to suppress competition. Those who make such assertions tend to focus on three elements — industrial policy, the keireisu (enter- prise groups), and lifetime employment — that sup- press competition in the Japanese business system. U.S. negotiators' view that Japan's "closed" system fos- ters collusion and restricts competition also leads them to insist that their efforts to help U.S. firms in the Japanese market are also in the interests of Japanese consumers. Given Americans' insistence on the virtues of com- petition, it is surprising that so many people see no inconsistency in believing that Japan had nearly four decades of economic growth with a Rmdamentally collusive business system. A more compelling argu- ment is that, in the 1970s and 1980s, Japans business system was fueled by competition, not collusion, and it was this competition that powered Japanese eco- nomic growth. Today, however, the sustainability of the key fea- tures of Japans business system in the fece of a five- year recession and the strong yen is in doubt. The prospects for change in the Japanese indtistrial system as a consequence of these forces are much stronger than any pressures that the U.S. government gener- ates. In this article, I examine the nature of competi- tion in Japan, the implications of its industrial polic)', the keiretsu, and the Japanese employment system and assess the prospects for fundamental change in the near future. Competition and Industry Structure Traditional economic theory espouses the view that free competition is the source of sound economic de- velopment. It maximizes total social welfare and forces companies to be innovative and to price their goods and services competitively. In this view, mo- Hiroyuki Tezuka is a senior representative, NKK America Inc., Washington. D.C. SLOAN MANAC.EMKNT REVIEW/WINTHR 1997 TEZUK.^ 83
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nopolies threaten the efficiency of markets, reduce in- novation, and slow economic growth. On the other hand, individual firms pursue strategies to reduce competition — to find "niches" where they have a monopoly or a commanding, dominant position and to drive competitors to the wall. Weak firms either go out of business (in the pure competition model) or
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