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The Miracle Of The Far East Growth
essay [ ]
Notes from a business study tour in nine major corporations from Japan and Korea

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by [Cormoranul ]

2010-03-18  |     | 

Before this trip I wanted so much to find the answers to some questions: What does the secret of Japan and Korea’s tremendous and fast evolution consist in? Is there anything specific that makes the difference between these nations and the rest of the world? What would be the most valuable knowledge that other nations and corporations should take from the Far East? How should we compete against them?
The companies visited were Hitachi, Kirin Beverages, Takenaka and NOK in Japan and Hyunday Heavy Industry, Hyunday Motors, Samsung, LG and Posco in Korea where we had the chance to meet and debate with the top management. All companies, by countries, were quite similar in terms of strategic thinking, and differences were obvious between Japanese and Korean companies, but not so different within the same national specific. The most interesting to me was the global environment in which the visited companies are major players, the way these companies influence the national and world economy.
Therefore, I would try to discuss from this perspective and to point out the similarities as well as the differences that I noticed and in my opinion are relevant beyond figures and statistics.
After the WWII, Japan was reborn from its own ashes as a Phoenix. There were hundred of books and analysis on this topic. I only have in mind a nice story from the Jean-Jacques Schreiber’s “Defying the World” of how Japan became a leader in the ship construction. As a part of a larger deal, a Brazilian ship owner ordered two ships to a Japanese constructor. The Japanese technology after the WWII was obsolete and the production facility was very poor, but the Japanese company made the best to deliver and with great efforts it succeeded. The first ship was not at all a great work in terms of performances, but it happened that at destination because of a pilot error the ship collide a dock and everything there was destroyed except the ship. No ship could resist to such an impact, but the Japanese one did survived. Everybody said then: “Wow, these Japanese ships are really something!” and other orders followed. The Japanese company could not refuse the new demands, and they were aware of their weaknesses so the first thing they did was to gather the best people from the shipyard and send them abroad to study in the top schools. I wondered myself what the most of companies would have done in such situation. Probably they would have taken the money for another few poor ships and consider to improve afterwards.
I think this is a very special characteristic of Japanese companies: they are hungry to learn, they learn from anybody, they elaborate their own expertise that they keep it in house and they take seriously any single opportunity.
At the first sight, the Japanese big companies seem to spread their resources in too many fields of activity where the business units are not as autonomous as the ones in General Electric, for example. Despite of fact that they have so many domestic and foreign competitors, they do not look worried about the fact they are not number one in many of their fields of activity as Samsung or most of the western corporations that usually keep an activity only if they can compete for supremacy.
The answer to this unusual approach may be that Japanese companies keep all the activities that provide a technical expertise which can be used by the whole organization and they avoid to outsource or to sell activities that can make them dependent to their subcontractors or buyers. In this way, they avoid to “feed” new possible competitors. Hyundai, for example, started as a subcontractor of some Japanese car producers, mainly Mitsubishi, and then it became a strong competitor of them. This company that appeared from nowhere in the late sixties is now competing for the world top position in quality and the fifth world car producer. Samsung did the same and now it reached and may overtake Sony as a brand value. Both, Sony and Mitsubishi took their lesson.
In a big and diverse company is hard to build and maintain a company culture and what companies as Hitachi do for that is to sustain their corporate culture through schools. This is an interesting concept. After church in our culture or other religious or confessional institutions, what are the institutions that better preserve traditions and build characters, skills and values? Usually, the school. When a company decides to invest in the education of its employees and select a limited number of schools to collaborate with, that means they want to build a specific type of business culture within the company. In opposition, there are companies as Takenaka and NOK that keep a corporate culture through the continuity of a family code of business.
Another characteristic of the Japanese companies is the focus on quality and here we talk about Total Quality Management. We have seen that obviously at Takenaka that extended their field of activity into legal and Real Estate trying in this way to offer complete solutions for its customers’ business. Takenaka was founded as a business in 1610 and was preserved as a family heritage from father to sun until present.
Korean companies really impressed me. They show a progress hard to believe it was possible. Is it a miracle? Not at all. They only learned the Japanese lessons and improved everything they borrowed from them.
First of all they build an industry and a market for their products by copying and producing cheaper and that is valid for all the Korean companies without any exception that I know.
By proving they can build as well as others, but much cheaper, they attracted capital from the markets that wanted or needed to transfer technologies and production from their countries. There were western funds that sustained investments in Korean industry that had to support with material and components the western industry (Ex. Semiconductors). The transfer of polluting industries to poor countries made possible the Korean steel industry to grow sponsored by the same western financial institutions.
With a big capital, new Korean facilities were built from scratch at a large scale. (Ex. Posco, Hyundai Shipyard). Those facilities were optimally designed gaining a big advantage in competition with the traditional producers if we consider how expensive is to extend the production capacity in a limited space around an old harbor like Yokohama, Hamburg or Bridgeport.
Korean companies started as family owned (Samsung, LG, Hyundai) or as state companies (Daewoo, Posco) in all cases with a very centralized and rigid structure. When they realized they need to make dramatic changes, all of them took the same measures: they hired high skilled managers from all over the world and they empowered them with large authority; they decentralized the activities and eliminate few layers of decision; they focused on R&D and marketing.
Visiting the LG plant I noticed that they just implemented Six Sigma and 5S, but they did not hear yet about Lean Manufacturing. They are still not enough efficient, but they won market share through innovation sustained by a good marketing, a high speed of product development and cheap prices. In Samsung, the period of a product development from an idea to the launching on the market is less than six months.
Another good move of the Korean companies we visited was their focus on the Asian market while Japanese companies were mainly focused on the US and Middle-East markets. It was a courageous move that proved to be very inspired today when the Asian countries entered on an economic growth line, especially Korea, China and India.
And finally, but not the least important was that the Korean companies succeeded to growth in a very well designed national development plan. None of them would have become so successful if they were too dependent of external resources. The Korean steel industry (Posco) was the one that supported and stimulated the other industries (Hyundai, Daewoo). At their turn, Hyundai provides energy, a large range of construction, industrial and transportation equipment, and in this frame of a growing industry, the top technologies (Samsung, LG ) found a good opportunity to build a domestic industrial and civil market.
In terms of organizational structures, we could identify few types of companies: Holding Structures (Kirin, Hitachi, Hyundai of which brands a lot of companies of different type of activities are operating); Multi divisional (NOK, Samsung, LG, Posco. Despite of fact that all of these companies have many subsidiaries they are subordinated to divisions by the specific of activity); Multi departmental (Takenaka where an unique field of activity is organized by functional departments).
While Hitachi, Hyundai Motors, Samsung, LG show global strategies the rest of them have multidomestic strategies of which NOK and Posco are aiming to globalize.
Most of these companies were born as a family business: Samsung, LG, Hyundai, Takenaka, NOK and only the last two still keep the traditionalism of a family business. Posco was born as a state company that became private, but a strong leader was the one that initiated and grew the company up to the level of a top in the industry.
In all these companies it was easy to notice the big accent on stimulating people’s initiative and creativity, the team work, the training and developing of managers and creating a cross-cultural leadership, but the methods are different.
While Samsung and LG prefer to hire the best top managers on the market and develop a multi-national culture, Hitachi, Hyundai and NOK are very much focused on developing leaders among people in the organization, faithful to the traditional values of the firm. Hitachi has a very coherent and well organized system of school training, while Hyundai emphasizes the internal specialization and NOK and Takenaka use the “natural selection”. This “survival of the fittest” system is based more on giving the people that invest in themselves the opportunity and the exposure to grow, but only the best go further in hierarchy and the ones that fail may be eliminated.
Samsung, LG, Hyundai and NOK were companies that had to take the big risk of a dramatic change in the last two decades and these changes where due to the strong leaders they had. Their change consisted in focusing on innovation, R&D and marketing and keeping only those activities that can give them a competitive advantage and a realistic chance to reach a top position on the market. At this moment, the Japanese firms seems to be more focused on operational efficiency and look now quite conservative in comparison with the Korean ones. They still very much rely on their products and services quality and the power of their brand. But a company like Samsung comes with a much more aggressive way of improving efficiency by building a competition between its own departments and suppliers. All the Korean companies that we saw are much preoccupied to reposition and give consistency to their brand image.
A foreign leader may learn from the Japanese companies the modesty to learn from anybody, the tenacity and the consistency of their efforts to reach their goals.
From a company like Samsung, we can learn the team work, the creativity and courage of their management, from Hyundai and Posco, the discipline and ambition of their employees at all levels, from Hitachi and LG the way of building teams, employees attitude, behaviors and relationships, from Kirin the restless search for continuous improvement and from NOK and Takenaka the spirit and the cherish of traditional values that are preserved like a religion.
Listening and watching to the presentations and reading the materials provided by the visited companies, we realized that from any perspective we look at them we cannot find something new. The differences between Western companies and the Asian ones are maybe coming from the weight that each of the cultures give to some fields of activity and the ability to create solid but flexible operational structures.
What the Asian companies are doing and we don’t do? First of all, they learn continuously from anybody, critically, but without arrogance. The Japanese and Korean companies had the power to radically change in a short time frame in order to survive and grow. Some of them may look traditional, but that is only in terms of corporate core values, being very flexible in terms of operating. They do not try to impose their culture and way of working in the entities they established abroad and they rather adapt better to the local conditions(Kirin, Hitachi, LG, Hyundai Motors).
Another important differentiation comes from their solidarity in doing business. The Japanese and Korean companies will hire a foreign supplier only if they do not have any of that type within their country or group of companies. They keep in this way a good stability of their supply chain and work with their suppliers to improve the quality of goods and services and optimize costs.
Being born in poor countries, the Asian companies were always very much focused on finding the better sources of raw materials and assure a stable supply. If necessary, they invested in their raw material suppliers.
We are comfortable to believe in the mith of Asian discipline and loyalty toward the employer in Asian culture, but this is a fake. The modern Japanese and Korean societies are confronting with the same issues in terms of human capital. People are not forced to work more than others, they look for better job opportunities and the headcount turnover in Asian companies is nowadays comparable with the European and American ones. The facts are that they raise and motivate very well their employees and especially their top managers and they are continuously looking to maintain their employees’ satisfaction by outstanding training, work conditions and benefits.
Many of these big and successful Asian Companies are not yet global while most of their Western competitors are. This advantage must be used and westerners should develop a strong business in the regions the Asians expand: China, India, South East Asia, South America and Eastern Europe because I don’t see how their internal market could be penetrated by the Western companies at this moment.
Everybody would like to invest in a successful company. Westerners would be better the first in doing that, if possible, with the aim of sharing the markets, the supply and sales structures as well as technical knowledge.
Nothing from what I saw and I know about production and Total Quality Management in the companies visited seems to be better than in any top European or American companies. I did not get also too many information about logistics, but I found similarities between Japanese companies and Americans in terms of working with the suppliers for a continuous improvement of quality of materials and delivery.
I found many similarities between the visited companies and the ones I know from Europe and America in terms of Human Resources, Management of Change and building a company culture and values, in people’s training and education, in the management of High Potentials, in Customer Centricity culture, but what I was really impressed of was the R&D of Samsung and their incredible speed of product development and I should also emphasize the vertical integration of the big Japanese and Korean holdings that resisted to all changes and recessions. This vertical integration was religiously preserved as a key of their authonomy. That is something that most of the westerners did not keep in their continuous run for fast growth and it costed them so much in the long term.

International Management Residency, May 2005

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