Research
How to Economize on IT
How to Economize on IT
"How to Economize on IT"
Managing organizational change in Japan
Information technology - and the information society - have been high on the agenda of
Japanese policy makers for nearly three decades. By dealing predominantly with the role ICTs
have been playing in restructuring processes of the Japanese economy during the 1990s, this
paper addresses the following two additional questions of general interest. Why do some countries proof better, some worse in generating gains on ICT investments? The second question
asks for the way technological innovation and organizational change are related to each other.
WOLFRAM MANZEN REITER
Introduction
Information technology- and the
information society- have been high
on the agenda of Japanese policy
makers for nearly three decades.
Following the first oil shock in the
early 1970s, ICTs (information and
communication technologies) turned
rapidly into major targets of industrial policy interventions, resulting in a
long series of highly visible government-sponsored development and
demonstration projects (cf. Anchordoguy 2000). It was only in the
1980s that Japan finally mastered
her way to the top leaving Western
competitors behind, especially in
technology- and knowledge intensive markets. A leading key factor
was Japan's national innovation system, characterized by technological
co-operation between firms of different industries as well as the close
integration of R&D, production and
marketing departments. The core of
Japanese competitive power has
been attributed to the continuous
product and production improvements realized by multi-skilled
workers of flexible manufacturing
systems (Yoshitomi 1997:57-61).
The effective fusion of mechanics
and electronics introduced microelectronics technology to the manufacturing site and rationalized the
workshop. In the late 1980s,
Japanese corporations dominated
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global markets for flat-panel displays, semiconductors and integrated circuits (Nagy et al. 1996:60).
However, at the very end of the 20th
century, and after a prolonged period of stagnation and sluggish growth
in what has been coined as "Japan's
lost decade" (Yoshikawa 1999:4;
Aoki 2000), it was not Japan but
rather the United States taking the
international lead in ICT. In some
instances, Japan turned out to be
lagging several years behind the US,
and even some European states, in
the diffusion of crucial technologies
(Saito 2000).
The causes of the impressive
robustness of the American economy
have been scrutinized by many
scholars, and still they are open to
discussion. Particularly the low
unemploment rate and strong noninflationary growth of the longest
uprise business cycle ever measured
in history have prompted economists to debate upon the conditions
underlying long-term growth performance and the probability of a "New
Economy" (cf. Bassanini et al. 2000).
While most analysts will agree upon
the importance of ICT investments
as the most decisive single factor
leading to economic growth in the
latter half of the 1990s (cf. Schreyer
2000), overall effects of the application of ICT across a wide range of
business sectors are still far from
being clear. Should we understand
the impact of ICT on corporate
behavior and macroeconomics just in
terms of capital investments? Or is
there evidence in favor of the "New
Economy hypothesis", which claims
that ICT in general and Internet
usage in particular are adding to
trend growth of total factor productivity, rather than merely substituting other outdated innovation factors (cf. Cop pel 2000:19)?
Research questions
By dealing predominantly with
the role ICTs have been playing in
restructuring processes of the
Japanese economy during the 1990s,
this paper addresses two additional
questions of general interest. Why
do some countries proof better,
some worse in generating gains on
ICT investments? Nonwithstanding
the rapid expansion of the ICT base
all over the OECD area, only a small
number of countries showed reasonable growth trends during the last
decade (OECD 2000:3-4). Without
doubt, US companies have managed
best to get hold of domestic and
global markets, in which first-mover
advantages, high lock-in costs and
economies of scales and scopes are of
crucial importance (Shapiro and
Varian 1999).
The second question asks for the
way technological innovation and
organizational change are related to
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each other. Organizations bring people together in order to realize goals,
which are explicitely stated in the
case of formal organizations such as
corporations. Companies usually pursue the ultimate objective of producing profits in order to protect interests of owners, capital lenders, and
other agents, including management
and workers, who have vested interest in the well-being of the organization. Thus we may expect organizations to behave like rational actors,
and ICT strategies may be considered as strategic investment to attain
profitability, which IS, in the
Weberian sense, rational action in the
pursuit of calculated ends. The
implementation of ICT strategies
may cover a wide array of operations,
from buying a desktop computer to
installing server/client-solutions for
entire departments or to computerizing manufacturing or procurement
processes. In any instance, formal
structures or informal arrangements
within the organization are very likely to change, once the new technology is in use. Basically two scenarios
have been advanced on the impact of
technology on the social environment. The first is a kind of technological determinism: organizational
change is either directly effected or
indirectly caused by the implementation of new technologies (cf. Rifkin
1996). The second starts from a different viewpoint: It is people that
determine the scope of change
effected by technology, not the other
way around (Ohmae 1995). As in
most either-or-situations, both sides
are probably right-and wrong. Thus
we can expect a more integrated perspective with a focus on a re-conceptualized understanding of "impact".
Business operations
In the ICT sector
One basic way enabling companies to economize on ICT is to
transfer business operations to the
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ICT sector, either by producing
hard- or software, or by providing
ICT related services. Generally, the
market looks promising, and it is
rapidly expanding: Since 1985, its
share in total real gross domestic
output has more than doubled, moving ahead of both wholesale and construction sectors. The 1998 value of
12.5 percent indicates the relative
strength of the industry amid several years of sluggish domestic growth
(MPT 2000a:38-39). PC shipment
in volume grew 31.9 percent over
year in fiscal 1999, reaching almost
10 million units (MPT 2000a:7).
Despite the upsurge of total unit
sales, values continued to decrease.
In line with biotechnologies,
Japan's software industry often has
been cited characteristic of Japan's
backwardness in future technology
segments. The harsh assessment
seems to be justified not only in
terms of creativity or development,
but also in structural dimensions.
Two major miscalculations are
responsible for falling revenues of
the hardware business. Firstly, manufacturers of the early 1990s had
completely overweighted the role of
mainframe computers. Japan nowadays still maintains competitive
power in this segment; yet its total
value is constantly declining because
of the expansion of related application fields of PC and UniX servers.
Secondly, management mistakenly
disregarded the future role of the PC
market, as well as the crucial importance of software development.
Additionally, closed production networks maximizing on internal standards, that guaranteed Japan's car
and electronics manufacturers leadership, were disadvantageous in the
new ICT market. Due to proprietary
architecture adopted by each PC
manufacturer, the industry had been
prone to loss of economies of scale.
For example, NEG's operating system PC 98, that was incompatible
with IBM standard, had been hold-
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ing a share of over 50 percent for
years until the open architecture of
Microsoft's DOSN was introduced
in a localized version.
IBM-compatibles saw their share
climb from 16 percent to 30 percent
of the market between 1993 and
1994. Japanese PC manufacturers
changed their strategy: Fujitsu
began producing IBM compatibles
at the end of 1993, while the sole
manufacturer of NEC compatibles,
Seiko Epson, began producing IBM
compatibles in September 1994 and
announced that it would stop producing NEC compatible PC-98s
(Anchordoguy 2000). After years of
slow or negative growth the PC market was forcefully revived by the
introduction of Windows 95 in the
last quarter boosting sales numbers
up 93 per cent over the same period
in the previous year. PC-shipment
that were 2,3 million units in 1993
(Kokuryo 1997), climbed up to 5.8
million units in 1996 (OECD 1999)
and 9.2 million units in 1999 (MIT!
2000). However, since new entries
to the world market, such as China,
Eastern Europe and the Southeast
Asian NICs, are able to profit by
much lower labor costs, Japan's revenues in these mass product markets
keep
on
decreasing
(Baba/Nobetaka 1998:60).
The decision to promote hardware and software as a package
makes perfect sense, if customers
are willing to accept the constraints
they are facing once their choice of a
given standard is settled. In general,
relying on proprietary standards
enables enterprises to gain profits
from sales, because they save royalties and may rationalize procurement efficiencies. In practice, consumers turned out to be better off
with IBM compatibles as competition between manufacturers kept
prices down, while the selection of
software applications increased.
With bundling hard and software,
Japanese manufacturers have been
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How to Economize on iT
quite successful only in the digital
game market. Apart from that niche
market, no operation system, and no
business software with global market
reach has been developed in Japan.
Aggregate sales in service businesses related to implementation,
operation management and version
upgrades of custom software reached
107.64 billion yen in 1999, or up 9.5
percent from the previous year.
These numbers are perhaps indicative of a new trend: IDC Japan, the
Japan branch of the market research
institute specialized on technology
markets and infocommunications,
forecasts growth at an average annual rate of 12.9 percent with packaged
business solutions fuelling growth at
a very high-speed rate of 118.6 percent in the coming five years
(Nikkei BP 2000-08-07).
ICT used In companies
A second way of economizing on
ICTs is to use them in business.
Most economists probably will
regard computers, networks and
other information technologies-inuse as input factors. This given,
rationality is dictated by prices. If
ICT capital goods are of no difference from all other types of capital
goods, and if prices are falling, company management might substitute
the latter for the former and
rearrange the way in which they
combine inputs into production
(Schreyer 2000:6). This perspective
also summarises the conventional
look at the Japanese innovation system. Computers, and other technologies, are chiefly a tool to support
the production process. Notwithstanding the recent popularity of the
'New Economy discourse', the fact
that most large companies in the
industrialized world have automated
and computerized parts of their
business routines during the past
thirty or even forty years deserves
attention. Japan has been no excep-
tion, and substantial parts of the
Japanese success story are closely
related to the skilfull integration of
microelectronics and computing
technology into manufacturing and
administrative work processes.
One characteristic example,
taken from the history of production
automatisation, is the Japanese EDI
story. Keiretsu companies, such as
Matsushita or Toyota, have continuously tried to rationalize procurement and supply routines by
exchanging data files via communications networks. Efficiency of electronic data interchange (EDI), however, remains limited as long as each
production network uses a system of
its own. In order to achieve the maximum of efficiency, suppliers, end
manufacturers and vendors have to
agree upon common standards. A
national all-industry-wide standard,
which is in compliance with the
United Nations' EDIFACT (EDI for
Administration, Commerce and
Transport), is actively promoted by
the Center for the Informatization
of Industry (ClI). In 1999, the CII
syntax has been formally approved as
compliant with]IS (Japan Industrial
Standard) rules. Although 20
branches have adopted the cn syntax as an industrial standard, its
basic protocoll is used by only 25.2
percent of all companies; most companies still rely on in-house protocols or their trading partners' proprietary format (JEDIC 2000:9). As in
most other economies, the decision
for either the international ED 1FACT protocoll, the national (CII)
syntax, a subset specific to a branch,
or a proprietary, self-developed system of a most important business
partner is not a matter of free choice
but depends on comparative market
power.
EDI usually relies on the transmission via privately leased data circuits. As the high costs associated
with EDI can be mitigated by use of
the Internet, various technologies
How to Economize on iT
such as XML (Extended Markup
Language, a subset of HMTL) are
under examination. According to the
1999 edition of the survey on corporate investment in information systems which was conducted for the
seventh consecutive year by the
Japan Users Association of Information Systems (JUAS) , more and
more companies are planning to
replace their traditional EDI system
with the Internet (Nikkei BP 200005-03). Numbers of companies registered with the EDI governing body
CII show steep growth trends, particularly since the Law on
Information Disclosure was revised
in 1998. Until its revision the law
enforced companies to store all business documents as hard copy files.
The legal constraint to print out all
documents was a major impediment
against streamlining office work as
well as the spread of EDI usage.
EDI is the key technology for
implementing business software
packages that have been crucial in
restructuring business procedures in
the US and European economies.
ERP
(Enterprise
Resources
Planning) software in general
enables companies to automate and
monitor flow of goods, cash and
information throughout the entire
supply chain. According to various
business simulations by The
Working Group on Supply Chain
Management Models of the Council
for the Promotion of E-commerce
(ECOM), savings of about 30 percent of present inventory costs are
possible for any party in the supply
chain (Ishiguro 2000). SAP, one of
the leading software developers,
promises return-on-investment of
up to 400 percent to its customers
thanks to savings opportunities of 10
to 20 percent on the procurement
side. The Japan branch of SAP,
though leading the domestic market, is only slowly getting hold after
having recorded heavy cuts in sales
in 1998 (Nikkei BP 1999-07-06).
IFAS-Forum 2/2000
For the time being, the Japanese
market for ERP or ASP (Application
service provider) software is still in
its infancy. According to the JUAS
1999 survey, more than 70 percent
of all companies surveyed have not
installed business engineering software packages at all. Those who
have record either positive impacts
on or no changes of business performance. The contradictory result
might be related to the "particular
Japanese way" of squeezing the software program into company needs
rather than trimming business procedures to adjust to the software
package. Localized versions usually
consist of translated modules that
take regional variations, e.g. of legal
issues, into account but not the tacit
knowledge of a company and its
members. Customisation of business
solutions always is part of the sales
strategy. Yet beyond a certain degree
of adoption, efficiency losses are
prone to follow. The very idea that
the complexity of work processes
can be adjusted to a monitoring software may seem awkward to a
Japanese user. The impression that
management and consulting formulas are culturally bound is part of the
literature which suggests the
Japanese company to keep its core
competencies in mind when implementing a "Japanese style SCM
business model" or getting connected to a "Japanese style EDI network"
(JUAS 1999).
ICT • a comparative
advantage for Japan?
The preference of rewriting software programs for any particular case
is a very important observation
touching upon the general relationship between technological and
organizational change in Japan, and
it might shed light on one of our key
questions concerning national comparative advantages. Whether in
Japan, in the US or in the UK, intro-
IFAS-Forum 2/2000
ducing new technologies to the work
shop or the office needs careful consideration of all parties involved. In
general, workers as well as lower
management tend to reject new
technology because they are reluctant to change. A first step consists
of a convincing marketing concept.
Business terminology that combines
the vocabularies of consulting and
state-of-the-art technology is part of
the current sales strategy for SCM
(Supply Chain Management), CRM
(Customer Related Management) or
CALS (Computer-Aided Lifecyle
Support) systems which slowly start
to spread in Japan.
My previous research on telework
in Japan (Manzenreiter 2001) has
produced ample evidence on the
functionality of discourse. In most
cases, the intention to reduce office
rent or labor costs initiated the
implementation of telework. Larger
companies usually pursue two
strategies, with one aiming at their
regular office staff and another one
at the delegation of DTP and similar simple work tasks to unskilled,
thus cheaper temporary workers.
Falling prices for network services,
work stations and personal computers and the liberalization of labor
regulations facilitated the trend
towards outsourcing white-collarwork. In many interviews managers
related their view on telework
experiments to humanist ideals, and
they extensively talked about the
idea to re-establish the balance
between individual and company
and provide employees with the
time and potential to develop their
individual skills. In all case studies,
middle management was blamed for
impairing efficiency gains, as they
were not able to develop goal-oriented tasks and measures of job performance. Yet most pilots reveal
efficiency gains of about 20 percent,
primarily due to increased self-management skills of workers and cuts
in commuting time.
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According to vanous surveys by
public and private research institutions, adapting workshop or office
routines to the particularities of ICT
usage has been appraised with
increasing priority throughout the
1990s. However, stuck between sluggish demand of anxious or troubled
customers, ailing financial intermediaries, and internal problems resulting
from overstaffing and excessive stock
inventories, companies tended to
keep new investments as low as possible (or necessary). Restructuring
thus has been taking place under two
antagonistic perspectives: prospective restructuring of sound and solid
firms, retrospective restructuring of
weak firms. Attempts to restore productivity just by cutting the payroll
turned out to be ineffective in the
longer run. At first just the announcement of corporate restructuring gave
a fillip to stock prices, but the market
soon turned to be rather concerned
with the plans' effectiveness, or their
effect on profits.
Hence what should be clear from
the telework story, or the EDI history, is the need to incorporate organizational learning into the acceptance
of information technology (Nohara
1999:259-260). It is essential to
develop appropriate management
tools suited to technological change.
The need of coordinating ICT and
business management might be a
crucial impedient for the time being.
Electronic commerce technology and
infrastructure investments were top
IT priority in 2000 for 65 percent of
CIOs
(Chief
US-American
Information Officer). But in Japan,
CIOs are comparatively low-ranked
in the company hierarchy and powerless. While the real distance between
CIO and top management is still
wide, he usually is in charge of managing informaton. Rather than being
responsible for formulating IT strategies, tasks are restricted to managing
the information systems (JIPDEC
1999; MITI/McKinsey 1999).
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How to Economize on IT
The use ofICTs can also impact a
company's relationship with its suppliers and distribution partners. The
(\',ility to gain information from others up or down procurement or distribution channels makes having
control over that process or entity
less of an issue. As an example, electronics giant Matsushita has established an Internet presence linking
all its 100 factories with some 3,000
suppliers, exchanging orders, payments and information. Only 900 of
them, usually bigger companies, had
already been connected to the old
EDI network of Matsushita.
With the Internet-based system,
Matsushita will be more responsive
to changes in the market and reduce
its stock of parts, by 30 or 40 billion
Yen which in turn helps saving financial costs (Economist 2000-04-15).
It is of no surprise that industries
with an established expertise of
standardization and network routines - such as electronics and car
manufacturers - are presently leading Japan's electronic commerce
business.
The spread of the Internet in
Japan opened small- and mediumsized enterprises (SME) a cheap
way to reach out directly to general
consumers and customers over a
wide area. Commercial use of open
networks by SMEs is still in its
infancy, yet a number of firms have
already established their own web
sites and stores on the Internet. The
number of allocated commercial
domain names has increased a hundred times over the past five years
mounting up to 170,000 in August,
2000; the number of connected
domains is only 10 or 20 percent
smaller, according to the Japan
Information
Network
Center
(JPNIC 2000) which is in charge of
registering all domain names ending
in ".jp". A survey conducted for the
Japanese manager association Keizai
Doyukai in 2000 showed that 94 percent of all enterprises manage a
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homepage, 44 percent are using the
Internet for customer relations, 28
percent for procurement, 71 percent
for supply and sales, 72 percent for
job recruiting, and 32 percent for
R&D.
Internet usage in general began to
rise only after 1995. About 4 million
Internet hosts (computers that are
connected with an Internet protocol
to the network) were registered in
Japan by early 2000 (JPNIC 2000).
The number of users exceeded 20
millions in June 2000, which is the
second-highest number after the US
- though with 21.4 percent connect-,
ed households Japan holds a place in
the OECD middle field, despite a
twofold-rise up from the year before.
A pretty good indicator of the spread
of e-commerce, which is a widely
used term subsuming all commercial
transactions via electronic mediation
using TCP/IP or other network
technologies, is the number of
secure servers. By encrypting the
transmitted information, secure
servers are able to safeguard consumer privacy. The OECD counted
1,946 of such secure servers in Japan
in March 2000, which is a close value
to the Nikkei Business Press estimate of 2,000 commercial sites operating at the end of July, 2000
(Nikkei BP 2000-07-26).
Sales operations which address
private households are only a minor
aspect of the digital economy. In
1998, business-to-consumer-e-commerce (BtoC) was 65 billion yen, or
0.02 percent of private household
consumptive spending. Notwithstanding vital growth trends - in fiscal 1999, total payments using JCB
credit cards on electronic-commerce
web sites increased by a factor of five
on a year-on-year basis (Nikkei
BizTech 2000-07-26) - the ratio of
e-commerce to total BtoC-transactions will remain close to 1 percent
(MITI/Andersen 2000). Currently,
Japan's BtoC-market is about 1I35th
of the US, or lagging behind four,
How to Economize on IT
five years. The gap is expected to
shrink to l!7th over the next five
years. The lag is already today much
smaller in the business-to-business
sector (BtoB). The Japanese BtoB-ecommerce market was worth approximately 8.6 trillion Yen in 1998,
which is slightly less than half of the
estimated US market size in terms
of value. Forecasts expect the
Internet penetration rate to rise to
11.2 percent of all BtoB-transactions
(MITI/Andersen 2000).
The ability to share information
and the ease of transfering designs
can lead to lower procurement costs,
increase of sales transactions, and
streamlining of business routines. It
is evident from the Basic Survey on
Business Structure and Activities
(BSBSA) 1999 that informatization
propels the increase of outsourcing
activities, too. One more aspect is
emphasized by the survey: The
Internet has leveraged the informatization of smaller companies. But
there are still signs of a digital divide
within the Japanese economy:
Firstly, in regional dimensions the
report hints at the uneven distribution of Internet-connected corporations which are over-represented in
Tokyo and other web knot areas.
Secondly, a strong correlation with
firm size is recorded. Larger firms
reveal a two or three times higher
probability of all kind of ICT investments (OECD 1998a:68). According
to the 1999 White Paper on SME,
around 90 percent of firms with 20
or more employees are using computers. Yet a large proportion of
SMEs with less than 20 employees
had not introduced computers at all,
and this proportional share increases
the smaller the firm is. Computer
usage, however, IS widespread
among SMEs with growing profits.
Taking and placing orders, gathering
data and sharing information with
customers and suppliers were main
reasons for their use of computer
networks. This indicates that some
IFAS-Forum 2/2000
SMEs are making active use of business-to-business networks for everyday transactions and as a means of
accessing
external
resources
(Chusho Kigyo Cho 1999).
According to the BSBSA 1999,
companies with one or two PCs per
employee were overproportionally
represented among all profit-making
firms. Furthermore, manufacturing
companies with highest computer
ratios tended to have restructured
their inter-company relations, either
by spinning off operations, byestablishing new subsidiaries through
acquisition of stocks, or by taking
parts in a parents-subsidiaries relationship. Trade enterprises with
growing numbers of employees
showed a similar positive correlation
with PC ratio (MITI 1999). ICT
related employment grew at an average of 2.1 percent annually between
1980 and 1998, which is a faster rate
than the average 1.6 percent of allindustry employment - albeit not
the fastest of all sectors. However,
dynamics of growth were more or
less exhausted already at the beginning of the 1990s. In general, ICTs
in Japan have not yet managed to get
rid of the job-killer image. A recent
study conducted in cooperation of
MITI and Andersen Consulting proposed the creation of 3.7 million jobs
over the years from 1999 to 2003,
while outsourcing and changing job
content due to the spread of
advanced telecommunication technologies will eliminate 3.5 million
jobs (MITI/Andersen 1999).
Institutional effects on
ICT development
Although progress and promotion
of e-commerce solutions is primarily assigned to private sector leadership and market-driven initiative,
strong support has come from the
Japanese government ever since.
What it does is to prepare the conditions that may facilitate or exacer-
IFAS-Forum 2/2000
bate the foundation of new business ideas. Thus the government
enhanced attempts to restore capital markets. The credit crunch of
the late 1990s had major impact
upon the stagnation of the Japanese
economy, and it is partly responsible for the delay of the spread of
infocommunications.
The state in particular plays a
leading role in improving the communication infrastructure. Since
the "New Social Infrastructure" initiative was launched in March 1993
to stimulate the stagnant economy,
billions of Yen have been poured
into research and development programs. Major actors from the government include the Ministry of
Trade and Industry (MITI, the
Ministry of Posts and Telecommunications (MPT), and the
National Land Agency (NLA).
Because of the central importance attached to ICTs, the
Japanese government set up its
headquarter of I CT policy in 1994
under the direct auspices of the
Prime Minister (as chair) and the
Chief Cabinet Secretary, the
Minister of International Trade and
Industry and the Minister of Posts
and Telecommunications as vicechairs. The Advanced Information
and Telecommunication Society
Pro-motion Headquarter (Kodo
Joho Tsushin Shakai Suishin
Honbu) developed its general policy in 1995. In view of rapid changes
and technological achievements,
the "Basic Program" was revised in
November 1998. Until the end of
2001, four major goals are to be realized: Firstly, full scale spread of ecommerce (security issues, personal
information protection), secondly,
introduction of e-government (for
example, one-stop administrative
services via pcs or local spots; R&D
of Intelligent Transport Systems),
thirdly, improvement of information literacy (i.e., connecting all
schools to the Internet), and
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fourthly, development of a highly
efficient ICT infrastructure by
installing a gigabit satellite network
(JIPDEC 1999c:41-44).
While the MPT places particular
emphasis on the extension of the
communication
infrastructure,
MITI supports the promotion of
electronic commerce. Since 1995,
about 110 billion Yen have been
allocated for a variety of testbed
projects related to e-commerce
(JIPDEC 1999c). 598 proposals
(worth 366 billion yen in total)
from various industries applied for
admission to the Advanced
Information System Development
Testbed Projects. Of these 156
were finally selected under the first
modified government supplementary budget for FY1998 (JIPDEC
1999a). Another 106 pilots applied
for participation in the Industrial
and Social Infrastructure Development Projects. This program was
implemented under the third government supplementary budget for
FY1998. 39 gained admission in
such areas as government procurement systems and financial transaction systems based on EDI
(JIPDEC 1999b) .
MITI has been hailed for its policy swift towards promoting more
competition, encouraging venture
capital and basic R&D (Anchordoguy 2000). Yet the MPT is often
criticized for its protectionist
industrial policy and its onesided,
hardware-oriented approach towards ICTs (Imai 1996:102).
Notwith-standing ministerial turf
wars, it was the telecommunication
sector that took the lead in Japan's
deregulation policy. According to a
recent OECD study on mobile
phones, the countries with most
competitors were, apart from the
USA, Japan, Korea and Netherlands. These countries have up to
five mobile operators competing in
the same markets. In Tokyo there
were four cellular mobile companies
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How to Economize on IT
in operation by 1994. The following
year three PHS systems commenced, one of which did not have
an existing cellular operation. This
meant that Japan was the first
country with five operators competing in the same market (OECD
1999:17). Local access pricing
which is said to have major impact
on the spread of Internet usage and
e-commerce sales (OECD 2000:10)
has been another target of international criticism, especially from the
US where prices are lowest and flat
rates are common. NTT which
monopolizes the 'local loop' has
been reorganized into a holding
company of two regional segments
(NIT East and West), that manage
communication within prefectures,
and a long distance communication
carrier. Due to the competitive climate generated by alternative network providers, and particularly due
to the unbroken popularity of
mobile cellular phones, fixed-line
telephone subscriptions have decreased over the past two years. At
the same time, NIT has lowered
its subscription rates substantially.
Both ministries are said to be at
odds over questions of what industries the government should support or what the intended benefits
from e-commerce will be. In spring
2000, a MPT working group presented a report called "Information
Technol-ogy in Japan for All" to the
Telecommunications Council. The
Industrial Structure Council, an
advisory panel to the MITI, issued
its own report under the heading
"Tasks and Prospect of Economic
and Industrial Policy in the 21st
Century". Both reports came up
with similar recommendations,
such as strengthening the protection of intellectual property rights,
promoting consumer protection,
the creation of an efficient environment with tax incentives and low
interest-loans that encourage private sector initiatives in the ICT
10
sector (Asahi Shin bun 2000-05-25).
Especially MPT is actively reshaping the high tech-image of Japan to
"become the home of the worldwide
IT revolution and the preferred site
experimentations"
(MPT
for
2000a:28). One field in which Japan
probably is going to take the lead is
the next generation mobile communication system. IMT-2000 services
(or, UMTS) are going to be
launched already in 2001, with the
MPT carefully selecting candidates
for wireless station licenses. While
the US still ignore opportunities of
mobile commerce, telecommunication carriers, hardware manufacturers and software developers in
Europe keep a close eye at the
booming market spearheaded by
NIT's mobile telecommunication
carrier DoCoMo.
Conclusion
The correlation of technological
innovation, organizational change
and policy shift helps to explain the
Japanese reality of the "productivity
paradox" (R. Solow). It is also a basic
prerequisite for understanding the
potentialities and restrictions that
restructuring Japanese companies
have to face. It is interesting to note
that a lot of literature on the
Information Economy explains
restructuring processes as the convergence of Western and Japanese
management styles. However, why
do Western or US companies benefit
from building "Japanese" strategic
production networks, and why do
Japanese companies do so hard in
adopting the flexibility required?
Two answers are provided by this
paper: Firstly, even goal-oriented
organisations do not necessarily
behave rationally because of the
internal diversification of vested
interests, power imbalance and
asymmetries of knowledge and
mobilizing power. We thus can rightly assume that firstly, organisations
How to Economize on IT
are to some extent susceptible to
non-rational influences, and secondly, framed by their particular conditions and their position relative to
the market and the state. Politics,
the law, and capital markets are
some additional factors acting upon
the way technology is adopted by
social organisations. They contributed to the formation of Japan's
national innovation system that was
highly efficient for catch-up industries. But it is not necessarily good
for innovative industries.
Where does the quest for Japan's
"new economy" finally stop? Data
that illustrate the continuous diffusion of ICT in Japanese enterprises
are abundant. In fact, the Director of
the Economic Planning Agency
(EPA) Sakaiya Taichi recently
announced in front of OECD ministers that ICT related investments
finally had substituted government
spending as most important growth
factor. However, according to firmlevel survey data from both OECD
and Sakaiya's agency, total factor
productivity gains are only evident
in some cases (Motohashi 1996; EPA
2000). Considering the connectivity
of technological and organizational
change, empirical studies such as
EPA's 'In Search of Japan's "New
Economy'" show that both act upon
each other. "Impact" is a complex,
interactive and ongoing process, and
not a simple linear movement.
Technology does not "impact" on its
social environment or vice versa but,
over time, each shapes the other.
Thus adopting ICT is just the first
step of restructuring Japanese enterprises. Without the second step of
human capital formation and the
third of flattening work organizations, firms cannot get total benefits
from ICT investments. The chief
responsibility is with companies, but
policy measures that enhance workers' employability and make labor
markets more flexible are required
to complement the firms' efforts.
IFAS-Forum 2/2000
Wolfram Manzenreiter is Assistant
Professor at the Department of East
Asia Studies, Vienna University,
where he is teaching modern
Japanese society. Recent research
projects deal with the social and economic implications of the spread of
new information and telecommunication technologies in contemporary
Japan. He is author of several books
and articles on popular culture,
leisure and sport in Japan. Currently
he is writing a new book on sport and
nation in Japan (with John Horne).
Recent publications include the
monographs Pachinko Monogatari:
Japan's Gambling Industry (Muenchen 1998), and The Social Construction of Japanese Mountaineering
(Wien 2000; both in German).
kigyo hakusho 1999. Tokyo: Okurasho Insatsu
Coppel, Jonathan. 2000. E-commerce:
Impacts and policy challenges. Paris: OECD
tai chosa 99 nendoban - The 1999 survey of
IT usage in firms. Tokyo: JUAS
(Economics Department Working Papers;
Kokuryo Jiro. 1997. "Information technolo-
252). Online: http://www.oecd.orgleco/wp/
gies and the transformation of Japanese
onlinewp.htm#2000
industry". Online http://www.kbs.keio.ac.jp/
The Economist. "No room in the nest.
Business-to-business
in
Japan",
kokuryolab/papers/1997003/pacis97.htm
Manzenreiter, Wolfram. 2001. "Telework
The
Economist 15-04-2000, pp. 77-78
in Japan. Apokalyptische und idealistische
EPA - Economic Planning Agency. 2000.
Visionen der Arbei tsgesellschaft", Hilaria
"IT ka ga seisansei ni ataeru koka ni tsuite.
Gassmann and Andreas Mrugalla, eds.: 11.
Nihonpan nyu ekonomii no kanosei
saguru
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(seisaku koka bunseki repoto No.4)" - The
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0
effect ofIT on productiviry. In search ofJapan's
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new economy. - Online http://www.epa.go.jp/
Wirtschaft. Miinster: Lit Verlag (in print)
2000/f/1 031 f-seisakukoka4.pdf
MITI - Ministry of International Trade
Imai, Kenichi. 1996. Information infra-
and Industry. 1999. "Points on the prelimi-
structures and the creation of new markets:
nary report on the 1999 Basic Survey
Japan's perspective. In OECD, ed., Employ-
of Business Structure and Activities (results
ment and growth in the knowledge-based
of
economy. Paris: OECD, pp. 101-113
http://www.miti.go.jp/stat-jlh2clsabj.html
Ishiguro Eiji. 2000. Nihon-gata SCM biji-
industry: a failure of institutions?" In:
JUAS - Japan Users Association of
Information Systems. 1999. Kigyo johoka jit-
Kyoku
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IFAS-Forum 2/2000
Research News
Distribution of Consumer Goods in the
Peoples· Republic of China
Master's Thesis by Angela DUS
(Academic Supervisors: Prof. Dr. Helmut KASPER, Department of General Management,
Human Resource Management and Organizational Behavior, Vienna University of Economics
and Business Administration, and Dr. Christiane ERTEN-BUCH, Department of Management
and Organizational Behavior, Vienna University of Economics and Business Administration)
HELMUT KASPER
This master's thesis is a casestudy-based investigation into the
practice of business in the Peoples'
Republic of China (PRC) and offers
interesting insights particularly for
readers of the business community. It
was financed by the Austria-China
Foundation and included two months
of on-site field research in the PRC,
mainly interviews with managers of
mul tinational corporations.
The research paper investigates,
describes, and discusses the distribution of consumer goods in the Peoples'
Republic of China. Particu-lar emphasis is placed on the food industry,
which appears a highly interesting
sector for two reasons. First, the food
sector in China is (still) rather closed
to foreign corporations. Second, it is
an industry which is highly dependent
on comprehensive infrastructure
development and thereby presently
rather obstructed by the lack of such
facilities in the PRC. The thesis
appears highly topical in the aftermath of the Asian Crisis - a period
which highlights how closely profits
and risks are intertwined in the
process of globalization. It shows that
there is no better instrument to minimize risks than precise knowledge of
local markets. As for China, understanding specific features and the
functioning of distribution networks
appears absolutely crucial for success
in the consumer goods industry.
The author describes the current
situation of wholesale and retail trade
in China characterizing the three types
of distribution companies existing in
IFAS-Forum 2/2000
the PRC: nationalized, private, and
international distribution companies.
Besides such structural issues of consumer goods distribution, the study
also touches the sensitive issues of
identifying appropriate distribution
partners in the PRC, dealing with competitors, and of protecting intellectual
property. The author also provides
insights into the current state of the
transportation and telecommunication
sectors, which are highly relevant in
the distribution of consumer goods.
Among the major findings of the
study are pieces of practical advice
how to handle fraud regarding intellectual property. Two approaches to
prevent such fraud appear effective in
practice: a) to contact the company or
party forging products and involve
them into the market penetration
strategy, or b) to take over the forging
company. It is interesting to note at
this point, that forging companies are
at times owned by government officials or other public sector officials.
Another group of findings relates to
infrastructure shortages in China and
possible measures to overcome them.
The author provides a large number of
recommendations for direct investors
in order to avoid costly market entry
failures. She explains and discusses
the typical Chinese "Guanxi" relationship structure, which is lacking a precise analogous term in Western languages, but is the foundation for success in conducting business in China.
Moreover, she underlines the value of
investigations into transport routes
before transportation by road is effect-
ed, and she reports about critical
insurance clauses leaving the damaged
party uninsured, e.g. in case entire
containers disappear without any broken carriage seal - a case that happens
all too frequently.
The marketing problems of two
multinational groups, Procter and
Gamble and United Biscuits, are more
closely investigated. What emerges is
that both of them face situations
rather uncommon in Western markets.
In China producers of consumer goods
may need to accept frequent long
range transportation of very small
quantities (e.g. two bottles of hair
shampoo) since retailers are financially
unable to keep a larger stock of such
products. Generally, building sustainable customer relationships in the consumer goods industry requires much
more of an effort in the PRC than
many Western companies expected.
The author concludes that four factors are at the core of investors' problems in the consumer goods industry
in the PRe. First, they frequently lack
knowledge about companies and individuals active within the distribution
system. Second, retail business is highly fragmented in China and therefore
requires a large number of contacts to
build up and maintain carefully. Third,
physical infrastructure is badly developed, which makes communication
and transport tiresome, and as a result
hampers the functioning of the market. Fourth, in spite of the previous
factors, competition in the consumer
goods industry is increasingly keen and
calls for cost efficiency.
13
Editorial
Research
Research News
3
"How to Economize on IT"
Managing organizational
change in Japan
Wolfram Manzenreiter
4
Distribution of Consumer Goods
in the PRC (by Angela Dus)
Helmut Kasper
13
Human Resource Management
in the PRC (by Elke Neubacher)
Helmut Kasper
14
Who Says 10 Percent Growth ?
Christof
Strategic Challenges Facing
Chinese Enterprises
Yajun Wu
19
Info
Studying in the PRC
Astrid Schnitzer
23
Review
Can Japan Compete?
Parissa Haghirian
25
Report
J. Paparella
15