Historical Development of
Management in Japan
Class 3
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Quote of the Day
Ganbare, Nippon!!!
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This Lecture
• Overview of the historical development of
management in Japan
• The Japanese recession
• Expectations for the 21st century
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Prerequisites of Japanese Success
• Japanese tendency to work hard
• Japanese drive for formal education
• Japanese skills in mastering difficult technology
– e.g. rice cultivation and casting of metals
– Taking up Western technology after the Meiji
Restoration
• Partly developed institutions like a highly
monetized market and a single nationwide
market (the two main centres at that time were
already Tôkyô and Ôsaka)
• Japan felt a strong urgency to keep up with the
West (Reischauer and Jansen 2005, p. 295 ff.)
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The Background
• From 1600 to 1868 Japan was ruled by the
third dynasty of Shoguns (Tokugawa)
• Black ships of Commander Perry (1853)
• Meiji restoration (meiji ishin 明治維新) in
1868
• Start of industrialization (paper, textiles, glass,
munitions and cement)
• Investments in infrastructure
• Zaibatsu emerge (Sumitomo, Mitsui,
Mitsubishi, Yasuda)
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What did the Meiji Government Do to
Establish the Japanese Economy?
• It established modern economic institutions
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A nationwide monetary system
Modern banking institutions
Western types of taxes
A national budget
• It hired Western experts to gain technological
skills
• It dispatched promising youths abroad
• It did away with feudal class restrictions and
allowed individuals from all backgrounds to
achieve success in the business world
(Reischauer and Jansen 2005)
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The Prewar Economy
• By 1870 Japan had almost bankrupted
itself because of its attempts to reform and
the costs of liquidating the ancient régime
• But the economic effort started to pay off
right in time
• Under private management businesses
began to strive and agricultural production
increased because of modern technology
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Prewar Economy
• The economy was further stimulated by the
Sino-Japanese War (1894-95) and the RussoJapanese War (1904-05)
• World War I left the Asian empires (of the
European powers) open to Japanese industrial
exports
• The worldwide economic crisis hit Japan too, but
because of renewed military expansion the
current quickly returned to its upward industrial
surge (Reischauer and Jansen 2005)
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Reasons for Success
• Classic Western pattern
– Increased agricultural production, improved
communications and an efficient centralized
government set the stage
– First light industries (e.g. cotton weaving)
were the focus, later heavy industries and
chemicals
– Early exports were often “shoddy“ and only
targeted Asian markets but by 1930 Japan
was one of the leading industrial nations of
the world.
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Particularities 1
• “Dual Structure of the Japanese Economy“
– Many Japanese economic activities (e.g.
agriculture, small handicraft industries, also
many retailers) continued little changed from
Tokugawa times (lower level of the Japanese
economy)
– Large scale industries were built on this
foundation (Upper level of the Japanese
economy)
– This also created some problems
economically (e.g. rice farmers)
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Particularities 2
• Strong ties between employer and
employee
– Similar to family ties
– Create a feeling of harmony in Japanese
corporations
• Strong ties between government and
business (unlike in many other countries)
– In Japan business traditionally developed
under the protection of the government, even
today they remain strong partners
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Zaibatsu
• The term zaibatsu 財閥 is applied to
certain giant financial, commercial, and
industrial combines
• Is loosely used for prewar big business in
general
• The four largest zaibatsu in the 1920s
were Mitsui, Mitsubishi, Sumitomo and
Yasuda
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Zaibatsu
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A typical zaibatsu is not like an American conglomerate, which
brings together totally unrelated businesses under the same
ownership
They were rational outgrows of evolving economic activities and are
therefore better described as combines
They cluster around a bank that finances the various acitivities
(vertical relationships)
e.g. a series of seperate companies may produce certain products,
transport these abroad on the combine`s shipping line, sell them
abroad and purchase raw materials for the whole process through
the combines “general trading company“ (sogo shosha) and all
these activities would be financed by the combine`s bank.
Zaibatsus never developed into monopolies because they mostly
operate in similar industrial areas
They allowed investments in risky markets and innovative
technologies which would only pay off far ahead in the future.
They so laid the base for Japan`s spectacular growth after World
War II (Reischauer and Jansen 2005)
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Sogo Shosha
• Refers to the Japanese trading companies
• From the beginnings of its industrialization
Japan lacked raw materials and Japanese
companies lacked capital and experience in
finding raw materials abroad
• Some trading companies did this only for the
members of their combine while other also
serviced other companies
• They started to build and provide excellent
worldwide services which other companies could
not provide (later also in Japan)
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Effects of World War II
• Japan was defeated in World War II
• Restructuring of the Economic and
Political System
– Dissolution of zaibatsu 財閥 (they are said
to be now keiretsu 系列, but there is not
more central ownership and no more rigid
controls and exclusive relationships as in
the zaibatsu)
– Education for all
– Formation of trade unions
– Women can vote
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Postwar Development
• The first few years after World War II were very
hard for the Japanese
• Recovery was much slower than in any other
postwar industrialized country and did not start
until the United States had carried out its
stringent retrenchment policies of 1949, stopped
further American reforms of the economy and
started heavy purchases for the Korean War
(1950 to 1953)
• By 1995 per capita levels of wealth had reached
prewar levels
• By late 1989 Japan had already pushed ahead
of other Western countries
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Reasons for Success
• Rebuilding everything (similar to Germany)
• Korean War
• Changes in the political and economic
system enforced by Americans
• Little spending on defense
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The Road to Success
• In 1960 Prime Minister Ikeda Hayato announced the
double income plan
– Economic growth of 9% for about 10 years would double the
GNP
– Japan was far ahead of the plan
• 1964 Tokyo Olympics
• Several large scale economic booms (e.g. Jimmu boom
1955 – 57 and Iwate boom 1958 – 61) were based on
capital investment from the heavychemicals industry.
• In 1971 Nixon stopped the convertibility of US dollars
into gold (Nixon shock) and the yen exchange rate went
up.
• This and the oil crisis in 1973 brought Japan`s growth to
an end
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The mid80s
•1985 Plaza Accord triggered the bubble
economy
•The yen appreciated rapidly (from 242 to
200 yen per dollar)
•US bonds lost value
•Money was driven to Japan
•Lowest exchange rate since the war
•Led to an investment boom
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So, what is a bubble?
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The End of the Bubble
• Japan`s bubble economy collapsed at the
beginning of the 1990s
• In 1989 the Bank of Japan changed to a
tight-money policy
• 1990 the Ministry of Finance requested
banks restrict their financing of property
assets
• New land taxation laws (landholding tax)
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The Lost Decade
• Financial institutions suffered from nonperforming loans
• Companies` three excesses:
– Excess capital investment
– Excess employment
– Excessive debt
• Deflationary spiral and higher
unemployment
• This period is called the “Lost Decade“
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Market Adjustments and
Recent Changes
• Changes
– Consumer behavior
– Working styles
– Retailing
– Easier entry for foreign companies
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