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Subject: DOESAMERICA SAY YES TO JAPAN? PART I
Message-ID: <[e-mail]>
From: Louis Pagan <[e-mail]>
Date: Wednesday, 23 Dec 1992 15:03:05 EST
Organization: City University of New York/ University Computer Center
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-------------------------CUT HERE----------------------------------------
(JAPANYES; From Internet FTP: monu6.cc.monash.edu.au   in: pub/nihongo)
(Part 1 of 2 sections)
----
Japanyes; THE SECOND EDITION; (plus US DEBT section)

The following article, JAPANYES, (2nd edition) comes from FTP site
monu6.cc.monash.edu.au. The most recent version is in pub/nihongo.

This paper was written by: Louis Leclerc; [e-mail]

Please send him any corrections or additions to this paper.

NOTE: This is a rather long but fascinating paper on how Japan Inc. functions.
For a former free-trader like myself, it has shaken some of my beliefs to the
very core. It will open your eyes a little, it will disturb you, and it will
quite possibly lead you to ask some serious questions about the future of the
United States of America as a world-leader. Reading this, IMHO, is well worth
the effort.

The level of detail and the overall gist is documented in many well-known,
albeit difficult to read, books (see appendix). The author's prime service to
us is the distillation of this information into a (relatively) brief synopsis.

Tom Mathes               [e-mail]

---------------
In the 2nd edition, typographical and content errors/omissions were corrected,
sections re-organized for better flow and less relevant sections were
deleted/condensed to make room for new material (the entire file must be under
100K to fit through email gateways). Japanese names were removed to protect
their anonymity.

Sections significantly expanded/added in the 2nd edition:
DISCRIMINATION
TRUE, BUT ONLY ON THE SURFACE
IT'S NOT ALL JAPAN'S FAULT
CONCLUSION
COMPANY LISTING (many new names)

Sections deleted/condensed in the 2nd edition:
WHERE IT ALL BEGINS (combined with BUSINESS IS WAR)

-------------------------------------------------------------------------
(ed112992)

                               Second Edition


       D O E S   A M E R I C A   S A Y   Y E S   T O   J A P A N ?

    (A M E R I C A   W A   N I H O N   N I   "H A I"   T O   I U K A)



     There are many misconceptions about Japan and its miraculous success in
the post-war era. While staying in Japan in mid 1992, I tried to look at
Japan's seemingly miraculous success with the hope to understand it so that
maybe we could apply some of their plan in our own country. "What makes Japan
so good?", "How did they get from a third world country to be the richest in
the world so quickly?" are common questions asked in America. Today, I will try
to answer with examples, at least partially, these questions.

     Going to Japan, I expected to see a very efficient country from which
America could learn in order to regain her former prosperity. During my trip,
the reality began to sink in that what is really happening was quite different
from expectations and in some ways quite disturbing. The Japanese have a very
different approach to doing business than we do. This paper will elaborate,
justify and try to show what is happening and why it is important that this be
understood here in America.

     Don't be afraid to question what you read here as I am confident that if
you research the points yourself (hopefully by going to Japan to see for
yourself or reading materials on the topic), you will find the points made in
this paper to be truthful.

THE "JAPAN PROBLEM":

     Some claims echoed in America which are commonly dismissed as "Japan
Bashing" statements, surprisingly turn out to be true upon investigation. The
following statements may seem brash right now, but their meanings will become
clearer in the explanations and examples that follow.

     It seems that Japan is in some kind of economic war against us. Their
objective is for them to win and for us to lose. Through the use of cartels,
price fixing, government-corporate 'anti-foreigner' tactics as well as
adversarial trade and predation strategies, Japan is destroying much of
America's strategic industries, standard of living and military strength. These
actions are also destroying the jobs of ordinary American people. As a result,
the greatest transfer of wealth in the history of the world from one country
to an other is happening right now, from the United States, to Japan. As well,
Japan is today, the largest holder of net foreign assets in the world.

     Those who study these types of topics know that economic wars can be even
more devastating to a country's long term future than conventional wars. Japan
is organized to fight, uses a tactical strategy and has a fundamental plan.
America's economic strategy is in disarray and there is no plan. As a result,
America is losing the economic war by default.

IN THE BEGINNING, THE TV CARTEL:

     A very famous example of Japanese national government and corporate
coordination to take over a foreign industry is that of the Japanese TV cartel,
first set up in the 1960's. This is how Japan took the free-world TV industry
away from the United States. PBS Frontline did an excellent documentary on this
called "Coming From Japan", (see Appendix for how to get transcript via
Internet).

     In the 1960's, the Matsushita Industrial Electric Company, Sanyo, Toshiba
and others formed a TV cartel in Japan. They got US TV technology from the
giants in the industry (Zenith, RCA, Quasar) in the following way. The Japanese
government prohibited US made TVs from being sold in Japan. Instead, they
insisted that the technology be licensed to Japanese manufacturing companies
rather than importing (still often the case today in Japan). The US companies
thinking they could still make money this way, agreed to these terms which
enabled the Japanese companies to acquire the technology on how to build TVs.

     The above Japanese companies, with tacit approval from the Japanese
government, set up a cartel to inflate TV prices in Japan in order to turn
around and use the money to sell below cost TVs in America. This was to drive
US makers out of the American and world markets. US TV makers went bankrupt or
left the industry as they could no longer fund research to continue making
improved and high quality TVs. They could not compete with the artificially low
Japanese TV prices in America and were forbidden to enter the Japanese market
to take advantage of the high prices there. Hence, the US makers could not make
money. Furthermore, secret deals, illegal under US trade law, were set up by
Japanese TV makers and US retailers such as Sears and Woolworths to sell the
TVs under store brand names. As a result, once famous brands such as Sylvania,
Quasar, Admiral, Philco and RCA have vanished or are foreign/Japanese owned.
Zenith is the only remaining US TV maker today. No US companies make VCRs
although they were an American invention.

     In the 1980's the Japanese applied this same strategy to the machine tool
industry and now completely dominate that industry as well (a point well made
at a machine tool exhibition I visited in Tokyo). Before that was motorcycles
and computer memory chips (the US tried to retaliate but failed as our
companies couldn't organize with each other during the now famous 'dram
shortages' a few years ago). It will be happening again with major and smaller
kitchen/washing appliances and telecommunications equipment during the 1990s.
It has already happened with liquid crystal computer displays where the
Japanese today have 100% market share (these were also invented in the USA).

DISPELLING SOME STATISTICS:

     Several misleading claims are made in the media about how the trade
situation today with Japan is fine. These will now be dispelled. One claim
states that Japan is opening its market because it has increased imports by 9%
in 1986-87 and 18% in 1988. This is a half truth because Japanese exports
during the same period increased by much more than that. In other words, the
trade gap got bigger, not smaller between Japan and its trading partners.

     An other false claim, most often made by Japanese trade representatives,
states that it is naturally expected and ok that Japan has a trade surplus with
America. This is because if every Japanese bought $100 of goods from America,
and every American bought $100 worth of goods from Japan, an imbalance would
occur in Japan's favor as there are twice as many Americans as Japanese in the
world.

     In the real world though, this is not ok, and cannot happen for very long
without serious consequences. To see more clearly this picture, imagine a world
with 2 countries, one with 100 citizens, and an other with 1 citizen, you. Each
person has $200 to their name. Every year you buy $100 of goods from the other
country, and each of their citizens buys $100 of goods from your country. If
you work out this example, you will see that in a little over 2 years, you will
have accumulated all of the money in the world and the other country will be
penniless. This is the current state of affairs between Japan and its trading
partners. Although things are actually occurring more slowly, this is the
trend.

POLITENESS AND CODED LANGUAGES, A BACKGROUND:

     Japanese communicate with each other and the outside world a bit
differently than we do. This is often a cause for misunderstanding between our
two peoples, so it will be clarified below.

     Because Japan was a communal society, a way of speaking in a way not to
directly offend the other person (who they still had to live close to after a
discussion had finished) has developed over time. There is even a Japanese
word, called 'Tatemae,'  which refers to this kind of phrase. These kinds of
phrases are a type of 'lie' in order to be polite. Often, when Japanese use
words like 'goal' or 'difficult' in reference to a request you make, this is
tatemae.

     Some recent examples from the evening news will make this point clear.
Recently, George Bush went to Japan to open the Japanese market to US goods and
to get the Japanese to use more US made car parts in the cars they sell to
America. After he left, the Japanese Prime Minister said the agreement they
reached was 'a difficult goal'. This is Tatemae code for 'we have no intention
of meeting your demand'. But of course, the Japanese PM would not say this
directly to George Bush, who is president of America. This would be extremely
impolite and Mr. Miyazawa could never say such a thing directly to an
individual of such prestige. The Japanese PM is thus in a difficult position.
This is an occasion for Tatemae. Foreigners (especially Americans) who aren't
used to Tatemae have extreme difficulty to understand its usage. Later, when
the 'promise' is broken, Americans often end up thinking they were lied to by
the Japanese when this was never the case. Really, the Americans were supposed
to pick up on the Japanese polite refusal, but failed to because they took what
the Japanese said literally.

     As an other example, an agreement was reached where Japan would allow more
US made computer chips to be sold in Japanese products. Recently, the Japanese
have said this goal would be 'difficult' to reach. This is code for 'we will
renege on the agreement'. If you know about Tatemae, it is much easier to know
what the Japanese really plan on doing when faced with a politically difficult
position as well as what they might be trying to say when they talk on
television.

     Finally, a claim is often made by cornered Japanese officials that "Japan
is at a crossroads" and the problems described in this article are being
resolved today. "The Japanese market is opening, but it takes time and
Americans must be patient for Japan to succeed at this difficult task." Japan
has been saying this for the last 20 years.

SHAME AND HONOR IN BUSINESS:

     Japanese people operate on a system of shame and honor (or the appearance
of it anyways). This developed due to the fact that so many people must live
peacefully in crowded conditions. When something does go wrong, there is a lot
of shame on the individual responsible. If the failure was bad enough, he may
commit suicide (a practice dating back to when Samurai committed suicide in
front of their superiors when they were responsible for a major failure). Some
major public figure commits suicide out of shame at least once a year in Tokyo.

     For example, while I was there, the CEO of Toyo Rubber (they operate as
B.F. Goodrich here in America) committed suicide by jumping in front of the
train because company profits were poor this year. A couple years back, after
a train wreck in which some people died, the manager responsible for the whole
affair also committed suicide.

     An interesting side note to this case is the existence of laws
discouraging suicide by jumping in front of trains in Japan. These demonstrate
the 'group' orientation of this society. The government has laws to fine the
jumper's surviving family members based on how much disruption to service was
caused by the suicide of the now dead family member. Apparently, the intent of
the laws is to force the jumper to think about the harm they will do to their
family by choosing the train as a means of suicide, hoping they will instead
choose other means to end their life and minimize service disruptions. In
practice though, these fines are hardly ever enforced.

DISCRIMINATION:

     Although the Japanese are individually are very polite people, Japan is
a very racist country, maybe even more so than we are. The common name for
foreigners is 'gaijin' in Japan. This is a racial slur somewhat in the way
'nigger' refers to a black person in America. There is however a polite form
of this word, 'gaikokujin', which means literally 'outsider country person'.

     When you enter a rental agency to rent an apartment (the only way to get
an apartment in Tokyo), some of the rental books say on the cover 'no gaijin'.
If you are a gaijin, you cannot rent anything in these books. This type of
practice seems to be very widespread.

     As an example of how deeply this goes, one may look at the now famous
Konishiki affair of last summer. Konishiki was the best sumo wrestler in all
of Japan. However, he was an American (Hawaiian). The overseers of Japanese
sumo continuously denied him the title of 'Yokozuna' (sort of an entry into the
Japanese sumo Hall of Fame for grand champions like Konishiki). Konishiki won
title after title, but was still refused. When pressed, the overseers claimed
that the holder of the Yokozuna title must possess 'hinkaku', a special kind
of 'Japanese grace'. They also claimed that it was impossible for a non
Japanese to be capable of possessing hinkaku. As a result, Konishiki was
refused the honor of the Yokozuna title. In the end, he never became Yokozuna
(and neither has any other foreigner in the history of the sport).

     Discrimination does not extend only to foreigners. Looking through any
major newspaper, you will see ads which ask for Japanese only (no foreigners),
men only, young women only, or people of a certain age. Discrimination doesn't
seem to be illegal in Japan. A law does exist however stating that it is a
Japanese 'goal' not to have discrimination (hint:this is Tatemae). This 'anti-
discrimination' goal/law does not seem to be enforced in any way. Races are
ranked in a kind of social order in Japan, first are Japanese, then white
people, other asians, then all other races besides black people, who are last.

     The government is sometimes a partner in racism and discrimination. There
exists an 'unclean' sect of Japanese society who are referred to as
'Burakumin'. They are a particular sect who's ancestors had an 'unclean'
religious history. A small square on the top corner of the Japanese birth
certificate is filled in if a person is a Burakumin, or is blank if they are
not. This is used by the government and the companies to deny Burakumin people
good jobs and advancement during their careers.

     There exists an other dark side to government sponsored racism, dating
from World War II, which exists even to this day. During the war, many Koreans
were forcibly taken to Japan, made 'Japanese citizens' and enslaved, or forced
to serve in the Japanese Imperial Army. Upon the end of the war, Japan revoked
Japanese citizenship from these people and their children. Unlike other
Japanese, they lost all rights to military pensions and healthcare (even for
injuries suffered while fighting for Japan in the war). As a result, today
these people live in Japan, but are stateless, have no passport and cannot
travel outside of Japan. The Japanese government considers these people (and
even their descendants who were in fact born in Japan) to be foreigners. It is
'difficult' for many of these people to get Japanese citizenship as Japan has
no diplomatic ties with North Korea. One requirement is that they must abandon
their real names and choose Japanese sounding ones (a requirement made on most
people seeking Japanese citizenship). Needless to say, the number of people
accepted as Japanese citizens or as immigrants to Japan is very very small in
number each year. Some claim that Japan sees it as an advantage to maintain a
racially pure society as it is less 'disruptive' to social order.

THE DISTRIBUTION SYSTEM, WHY FOREIGNERS ARE SET UP TO FAIL IN JAPAN:

     An extensive hierarchy of small distributers and shops exists in Japan
which hinders the distribution of foreign goods. When Americans say the
Japanese distribution system is 'difficult', 'byzantine' or 'complex', this is
what they are referring to. In reality, the Japanese distribution system is
fixed. This is why it is so difficult and complicated for the foreigner to
succeed in.

     Japan, being a communal society, follows a strict code of loyalty.
Shopkeepers have loyalty to their suppliers and customers. They all have
loyalty to the nation, Japan. Undoing this arrangement that brought the country
and its companies so much wealth and power via the entry of foreign goods would
be disruptive to this system of loyalty. This is one reason it is so difficult
for a foreigner to enter the Japanese market. There are higher forces at work
too though:

     How important this was became very clear when I befriended a Japanese
government worker. He explained to me how the system worked and why a foreigner
cannot usually circumvent it. I suggested the following proposal as an example.
The discussion went something like this:

     I can sell high quality made in USA GE refrigerators and Hoover vacuums
at a much cheaper price in Japan that Toshiba and Sanyo can (this is in fact
true). I want to start a business. I go to Japan, but no store will carry my
products because I am a 'gaijin' (foreigner), and my products are foreign.
Doing so would anger the domestic suppliers of these distributers who may hold
some of the shop's loans or offer them favorable payment plans.

     I decide then, I will set up my own company in Japan, open a shop and sell
the appliances myself since no Japanese store will do so for me. The government
worker said 'You can't because you are a foreigner. Foreigners cannot own
companies in Japan'. This is in fact true. It is this government practice which
keeps foreign business ventures in the control of the Japanese (and hence why
they tend not to succeed). It is also the reason there are so many 'joint
ventures' between a Japanese company and a foreign one to enter the Japanese
market. Otherwise, the foreigner is forbidden to enter, or later set up to
fail.

     So, anyway to get around this law, I told him that I will open the
business in my Japanese wife's name, so now a Japanese owns the company. He
said 'you will still fail because as you find success in the market with your
inexpensive American goods, the other vendors will get angry at you. They will
politely ask you to raise your prices to that of the Japanese made goods so the
system doesn't get disrupted'. I, of course, replied that I would refuse to do
this as its not in the interest of my customers. He replied 'then the vendors
and the Japanese companies (such as Toshiba, Mitsubishi and other appliance
makers) will complain to the government. The government will then prevent you
(subtly though as free competition is 'the law' in Japan) from operating your
business successfully or profitably. New building permits for your stores will
be delayed for months for no reason. Business license paperwork will get
misfiled or lost without explanation causing you legal hardship. Goods will be
delayed unloading off your ships for 'too busy customs officials' or 'lost
somewhere on the pier for 6 weeks' making you miss delivery deadlines and
angering your customers...' Such 'subtle' persuasion is how you are brought
into line in Japan.

True-life examples of this abound. Here are a few:

     This is exactly what was done when a foreign garment manufacturer tried
to sell their clothing in that country (threatening the domestic garment
industry). Customs delayed unloading of the goods until enough of the summer
season had passed making the summer fashion clothing unsaleable. Making foreign
farm produce which competes against domestic Japanese produce wait on ships
long enough to rot or not be appetizing to the consumer is an other practice.

     The Feb 10, 1992 of Time Magazine describes how a US lamp manufacturing
company encountered also exactly this problem. It took them 9 months to get
lamps off the ship sitting in the harbor and into retail stores in Japan after
customs, and other government agencies stalled and stalled (which cost this
particular company lots of money).

     Many anti-foreign goods laws are often written in the form of 'protection'
to the consumer. These are applied discretionarily and are really written to
prevent or make it expensive/slow/impossible for foreign goods to enter the
Japanese market. For example, one well known Japanese tactic is the use of only
one or two 'inspectors' who are responsible for 'inspecting' every single one
of an importer's products entering Japan (ie. bicycles or cars). As every item
must be individually 'inspected' (ie. ridden or driven) very carefully and one
at a time, this takes very very long to do (one never knows how long). This
causes enormous delays and costs the importer lots of money as well as
preventing timely delivery to the customer. Competing Japanese domestic goods
are often exempted from these 'consumer protection' laws as inspection is 'done
at the factory by the manufacturer'.

     Of some other more famous 'consumer protection 'laws, one for many years
banned US beef from Japan because 'Japanese intestines were the wrong length
and couldn't digest US beef which is too hard'. An other banned european skiis
because the snow in Japan was 'different'. US made towels were banned because
the fibers were 'too rough' for Japanese ears, which are 'softer' than ours.
All foreign rice is banned for 'national security'. Rice in Japan as a
consequence, is the most expensive in the world.

     Finally, as an example of the no-foreign ownership rule, the recent
baseball team fiasco comes to mind: Nintendo recently bought the Seattle
Mariners Pro Baseball team. It is in great irony that it is illegal under
Japanese law for an American to buy (very lucrative) Japanese Pro baseball
teams (from ABC News Nightline).

THE BUSINESS CARTEL, KEIRETSU:

     Let us go now to a primer on Japanese business organization. Almost all
the significant companies in Japan are aligned into one of about 6 keiretsu or
business 'groupings'. These are loosely linked 'super-corporations' for lack
of a better term. Most of the Japanese companies whose brands we know and love
here in North America are in these keK;netsus. These keiretsus have been around
a very long time (before WWII) dating back to feudal-like family run trading
houses. Mitsubishi and Mitsui are two of the more famous ones. Famous companies
like Nissan, Toshiba, Sumitomo Bank are all in keiretsus. The keiretsus were
disbanded by U.S. forces during the occupation because it was feared they could
one day be dangerous to America. However, upon departure of U.S. occupying
troops from Japan, the ex-member companies rejoined each other to reconstitute
the keiretsus which had previously been disbanded.

     Here is why this is so important. Each of these keiretsus have under them,
member companies who operate in each of the major critical business areas.
These are: banking, distribution, steel making, heavy manufacturing and
electronics. Mitsubishi Bank, Mitsubishi Electric Corp, Mitsubishi Heavy
Industries and a wide array of other Mitsubishi companies (several hundred)
making all kinds of other things are in a keiretsu. (Mitsubishi is unusual as
most of their operations have the same name). Each of the companies in the
keiretsu are independent and very specialized in what they do in all senses of
the word except for loyalty. Imagine a keiretsu is something like a college
fraternity, but for companies. Their individual independence is what keeps
things from getting too big and out of control, yet they can make a united
front for issues important to the national or keiretsu effort.

     To make the point, a car company and electronics company in the same
keiretsu have a long term relationship to help each other, for example to make
a really fancy computer control system for cars, or to make special
lift-loaders for the computer company's factory. If you walk into a Japanese
transplant auto assembly plant in the United States, you will find that the
equipment from the stamping presses to the forklifts are Japanese brands, even
if it is more expensive (in the short run) to do this. This is national and
keiretsu loyalty at work.

     Every Keiretsu has a bank. This is the heart of the keiretsu. The bank is
like a national central bank, but for the keiretsu. The bank takes money from
winning operations and gives it to new ventures in the keiretsu without the red
tape that a bank would usually give before lending to a new start up venture.
Having a bank who is in fact a part of your company means they will be fiercely
loyal, understand your business and not call your loans for silly reasons like
US banks do. This is much more efficient than the way America does banking and
lets companies join forces to use their capital much more effectively than the
US can.

     This is also why buying a Japanese product may put buyers of that product
out of a job, even if they work in a different industry. They take the profits
from the product that person bought, shift it through the keiretsu bank to
develop, invest in and dump products into the industry or market that person
now works in, and put them out of a job. See the telecommunications example at
the end of this paper for how this works in practice.

COMMAND AND CONTROL:

     Japan's business effort is directed by the powerful Ministry of
International Technology and Industry (MITI). It decides national strategic
industrial policy and determines with the corporations, which industries to
target, enter, exit, take over...etc. This is where Japan's 'united front' when
entering a market is co-ordinated from. This is also why you often see several
Japanese companies entering a particular market at the same time (ie. TVs, and
more recently, luxury cars). By acting in unison, the companies, banks and
government can attack and overrun a foreign industry with a much bigger 'punch'
then had they done so separately. It also enables strategic moves which
countries like America cannot do as American business efforts are not
co-ordinated in any kind of way.

     In fact, such moves are illegal for US companies under antitrust laws from
the 1930s. This puts us at an enormous disadvantage against US Japanese rivals
as it is legal for example for Ford and Mazda to join forces, but not for Ford
and GM to do so. The US antitrust laws were written at a time when US companies
were the most powerful in the world. This is not true anymore and hurts America
greatly as US firms struggle in the world marketplace against large foreign
firms who are able to join their forces to defeat America's companies.

THE PROTECTED HOME MARKET...JAPAN'S LAUNCH PAD TO THE WORLD:

     Japan has a protected home market which serves a very important purpose
to the country and the national business effort. The home market is for trying
out new products, copying and improving foreign designs, getting capital
(through price gouging) without fear of foreign companies entering and ruining
the game.

     An unwritten rule is that there is no real competition in the Japanese
home market between Japanese companies which are also strategic exporters. Real
competition occurs in foreign markets outside Japan. The home market is a
'safe' market where these companies can experiment with their products, improve
upon them, and fix problems with out fear of any real foreign competition
capitalizing on their blunders (a luxury our own companies do not have in
America). For example, SONY and Mazda did or had done this frequently within
Japan. The scheme works as follows and is the critical reason why a Japanese
company can enter almost any world market or industry from scratch and overrun
it so quickly:

     Imagine Sony comes out with a new type cassette player which is very
small. It breaks often because the small plastic gears inside are of low
quality and wear out (this was true, actually). This machine though, is only
sold within Japan. Only in the future when it is perfected will it be sold to
the outside world. Now lets imagine GE is the dominant manufacturer in this
market worldwide. They want to sell their player in Japan (which is better than
SONY's) but can't because they are forbidden for all the reasons mentioned in
this article. Sony fixes their gear problems, tests it in the home market (this
is one reason why the latest Japanese products hit the Japanese market at least
6 months before anywhere else) and later exports it abroad. Sony maintains its
good reputation in America as their player works well (the US customer never
got a machine with the defective gears). Sony sells this player at 3/4's the
cost to make it in order to increase their market share and drive GE out of the
cassette player business. Sony doesn't go bankrupt doing this because they can
sell players in Japan at twice the cost to make them and hence cover their
losses in America. Because GE is forbidden to sell in Japan, and can't make
money at home in America because Japanese players sold there are too cheap,
they surrender and lose market share. GE asks the US government for help but
is refused. Later when this is exposed, GE is accused of 'whining' and 'not
trying hard enough to enter the Japanese market' by the Japanese Prime
Minister.

     Now, imagine the reverse situation. GE also makes a machine that is poor
quality in its home market of America (this was also true). The Japanese then
enter unimpeded, dump their perfected goods here and drive GE out of the
market. As you can see, whenever a US company makes a mistake in the home
market, it suffers greatly, but when a Japanese company does in their home
market, they don't suffer so much. Hence, even if the American company is more
efficient and generally of higher quality, the Japanese companies will
ultimately defeat the US competition. This is true even if the US companies
make fewer and smaller mistakes over the same period of time because the US
company gets hurt for a mistake in the home market, but the Japanese one does
not. For example, Japanese car companies have also come out with disasters
comparable to the 'exploding Ford Pinto'. But by using their protected market
for experimentation and improvement, they are able to resolve problems like
this before they arrive on our shores. Our car companies have no such luxury
and hence suffer the consequences each time they make a mistake. This is an
other reason why the Japanese protected/non competitive home market is so
important to their success.

     The non-competitive home market serves an other important function to
Japanese industry. Smaller/weaker Japanese companies are allowed to survive
because it is possible they may some day have a 'winner' which would be good
for Japan (this actually happened to Mazda with the Miata and other recent
offerings in their foreign markets). If the company were bankrupt though, they
could not come up with 'winners' sometime in the future. Its better to let the
weak competitors survive in Japanese market in the hopes they become strong
someday. Because of laws restricting foreign ownership as well as
'cross-holding' agreements between the Japanese companies, there is very little
risk a non-Japanese company could take over these weaker players and enter the
Japanese market. Unfortunately, the same protection is not bestowed among
America's promising small companies who are easily taken over by major Japanese
players who want their technology.

     The no-home-competition point is ironic, because some newspaper reporters
who don't understand the Japanese economy write quotes like "there are 7 car
companies in Japan (a country with 1/2 the population of America) therefore the
car industry must be extremely competitive in Japan". The truth is that there
are 7 car companies in Japan because there is almost *NO* competition in the
home market. This is why their market shares in Japan are stable. They are
basically fixed. If there were competition, the strong players like Toyota and
Nissan would have absorbed or bankrupted their less powerful rivals like Mazda
and Daihatsu long ago.

WHAT IS DUMPING AND WHY IS IT BAD:

     A New York Times writer last year wrote in his commentary that Japanese
companies are foolish because they practice 'dumping' (selling their products
here for a price lower than it costs to make them), and that he hopes they
continue as it benefits the American consumer. His article is misguided and
shows why it is so difficult to understand why Japanese business practices are
so dangerous to America.

     Some Americans think buying dumped products is good. This happens because
they don't see the real costs to themselves which are not on the low sticker
price. These costs turn out to be higher to the buyer than the savings on the
product price (otherwise the Japanese would not be dumping... ...there's no
such thing as the deal that's too good to be true). The key is that this cost
is indirect but very real nevertheless. It turns up somewhere else than at the
checkout counter and is how Japan profits by 'dumping'.

     The cost to America (and the benefit to Japan) turns up in the long term.
This is why it is not seen so easily. It turns up in America as unemployment,
closed factories and reduced national strength as US companies cannot compete
against this practice. Japan's factories run, their people get jobs and later
on Japan makes much more profit than it originally cost to do the dumping.
Japan can do dumping by raising prices in the home Japanese market to pay for
dumping in America. US companies don't have this luxury as the US market is
open to the outside world and prices cannot be artificially raised to pay for
dumping elsewhere.

ECONOMIC STRATEGY, WHAT IT ALL MEANS:

     Many people ask, what is a national industrial strategy. Some people claim
it is a form of socialism or communism. Nothing could be further from the
truth. Again, the best explanation is by example.

     A few years ago Japanese industry co-ordinated a successful attack to take
over the entire world commercial supply of LCD computer screens by selling them
at 1/3 the price to make them, (PBS Frontline, "Losing the war with Japan") and
waiting for the small US upstarts who invented them to go bankrupt. As a
result, today all LCD screens in any non military computer in the world are
made in Japan. This is a very strategic component because it will be used in
portable computers, medical imaging equipment, videophones, HDTV, touch
sensitive visual programmable refrigerators and stereos..etc.

     If you are a non Japanese maker of any of the above items, this is very
bad for you, because you will have to go to the Japanese to buy these screens
to put into your product (say a portable PC computer). However, the Japanese
companies also want to make these products too (entering your industry is part
of their long term strategic plan (which is 200 years long)). As a result, they
want to make you uncompetitive. They do this by selling these screens to you
at a price higher than they sell the same screens to Japanese PC makers (which
might even be the same company as the screen maker). They can do this because
they have destroyed the US competition. You are forced to go to them if you
want these screens.

     You need these screens though so your PCs can compete with the Japanese
PCs which will be on the market soon, so you must buy them as there is no other
supply. This means though, that your PCs are more expensive then the Japanese
ones because you are paying more for your critical components than the Japanese
companies are paying. ...You lose...

     Besides offering to sell you the screen at some ridiculously high price,
the Japanese will often offer to manufacture your entire product at a
reasonable price and put your name on it. For example, some of the Mac
Powerbook portable computers are not Macs at all, but really SONYs. Most
portable PC computers today are made in Japan for the above reasons (even if
they have American brand names on them).

     This type of deal is really nice for Japan because it gives the Japanese
companies the rest of the technology to make your product (besides the
strategic component). This also makes you dependant on them for all your
manufacturing (because your factory is now closed, your workers unemployed and
new ones too hard to train quickly). Finally, your Japanese supplier can bypass
you entirely at a future date and sell the computers they make for you, but
with their own name on them. They do this in the factory your sales helped them
to build in the first place. Mitsubishi did this to Chrysler with cars, first
it was the Eagle Talon, then later the Mitsubishi Eclipse....both cars are
identical, but really Mitsubishi's.

     The LCD screen monopoly is what enables Japanese companies to have such
a large market share in portable PCs which use these screens yet almost no
market share in desktop PC computers (which don't need these screens). Japan
hasn't been able to take over the desktop PC market because its still advancing
too quickly and they have no monopoly on any critical components in these
machines. As a result, this industry can still belong to America. America is
able to hold on rapidly advancing industries through innovation, but Japan
cannot. This is because by the time Japan copies a foreign design, it is
already obsolete. Japan has poor luck trying to hit a moving industrial target
and will usually miss. So long as an industry moves fast enough, and the
Japanese don't succeed in taking hold of some critical component of that
industry, the US will be able to hang on to it until it slows down or matures,
then the Japanese can successfully take it over.

     By focusing on taking over markets like LCD screens, critical computer
chips, high precision machining, and auto manufacturing, Japan has
significantly reduced America's ability to make these things in time of
national need. Japan lost World War II because they had a poor manufacturing
base (they had to stockpile for 4 years before starting World War II). They
have learned very well from that mistake, which now America is making.

     This example shows why something like LCD screens are a strategic
component and why Japan needs to dominate this industry. This is what is meant
by a famous Japanese phrase: 'Business is War'. Key markets overlooking
industries are like peaks overlooking cities. The strategy in a business war
and economic war is the same, and the outcome is the same. Domestic factories
are gone because the industry has been killed economically (rather than being
bombed), workers are out of a job, and the target country has much less power
and safety in the world. It is like a real war, but less bloody.

THE ECONOMIC WAR, A SUMMARY OF THE GLOBAL PLAN:

     Free world trade is a good thing for all countries. Generally, countries
raising protectionist barriers against each other is very bad. This in fact,
helped cause the 1929 depression. What is happening now though is worse.
Although some will tell you that the US and Japan are practicing free bilateral
trade, this is not true. Today, Japan and America have basically a one-way
trade relationship. Japan closes their market towards us, but we don't towards
them.

     Some say that Japan has a national strategy to control economically, what
it could not get militarily 50 years ago. An impulsive claim perhaps. But,
today, I am not so sure.

       Some may think that only America is having trade problems with Japan
right now. This is not true. Most other industrial countries in the world are
in the same predicament. Today, Japan has a huge trade surplus not only with
America, but with almost every other country in the world it trades with. This
happens when Japan buys less in products from other countries than the other
countries buy from Japan. This is bad because it means Japan takes money out
of America's economy and uses it for their own purposes (such as buying our
real estate, or companies).

     Japan's trade surplus is no accident. It is not the result of Japanese
efficiency, American laziness or anything else the Japanese government
officials may tell you on the TV. The real cause is this: Japan trade patterns
are not bi-directional in the common sense where two countries buy each others
exports and a happy state of affairs results. Japanese policy is to
intentionally use foreign cash profits not to buy a foreign country's
exportable products, but rather its capital assets like companies, real-estate
and art, while preventing the other countries from doing the same thing in
Japan. This enables Japan to get wealthy and powerful extremely quickly while
still being more inefficient and averse to business risk than its trading
partners. When 'whiners and Japan bashers' claim Japan is 'cheating', the
following is what they are trying to say. Here is an explanation of how it
works.

-->Defense:

     There is a three tier economic defense which the Japanese use. First is
a set of laws which severely restrict/prevent foreign ownership and control of
Japanese companies and assets in Japan. As a consequence, GM must sell their
cars through Isuzu and Ford through Mazda. Chrysler doesn't sell many cars in
Japan. Long ago Ford used to have a large market share in Japan but the
government closed their operations and forced them out of the country. Today,
foreigners typically cannot own Japanese companies, especially those in
strategic industries such as manufacturing and technology. It is because of
these laws and regulations that you hear about so many 'joint' ventures between
US and Japanese companies, where the venture is intended to help the US company
penetrate the 'difficult' Japanese market. These joint ventures really enable
the Japanese companies to get foreign technology without having to invent it
themselves. The foreign company gets only a token market share in the Japanese
market in return.

     It was in this way Japan learned from the US companies how to make TV's
in the 1960's. More recently, the Japanese government recently forced Texas
Instruments to join a venture with SONY, where SONY got technology in exchange
for TI being able to sell some of their products in Japan.

     The second defense mechanism is the wide 'cross holding' of stock shares
between the companies in Japan. This basically works by having the Japanese
companies print up lots of shares and exchanging equal values of these shares
with other Japanese companies. This is very cheap for the companies there to
do. As these shares are never given up or sold, they are effectively taken out
of circulation. Because companies own such a large percentage of each others
shares, it is impossible for a foreign firm or individual to accumulate enough
shares (51%) to take over a Japanese company. As a result, a foreign takeover
of a major Japanese company has never occured.

     A side note of all this is that Japanese companies are able to think long
term because they don't have to answer to stock holders at the annual
shareholders meeting. Because so many shares are cross held, private
shareholders tend to be not so significant in number and hence not a threat to
the board. This is why US companies must worry about short term performance so
much, often at the expense of wiser long term decisions. Japanese companies do
not have to worry about this, so they tend to invest much more in the future
than we do and hence are much more successful.

     The final defense system is a well set up structure of government laws,
behaviour and corporate co-operation which prevent foreign companies who get
around the first defense system from succeeding to make money by selling
products in Japan. The government delays foreign entry of goods through lots
of intentional customs and other regulatory snafu's as well as red tape
designed to hinder a foreign company to the point it becomes non competitive
in the Japanese market place.

-->Offense:

     The offensive strategy is also a three tiered system. Firstly, government
(through the powerful Ministry of International Technology and Industry) and
corporations co-ordinate and select targeted strategic industries which they
want to enter, or take over.

     Secondly, they obtain the basic technology (often from the current foreign
firms in the industry), then copy and improve upon it. They do trials, have
failures and make further improvements in the Japanese home market which is
protected against encroachment by foreign firms which may be already
established in the rest of the world within that particular industry.

     The final and most critical stage in the offensive system is the practice
of product dumping in order to gain market share overseas. Japanese companies
will initially export a product overseas at a price usually lower than it costs
to make it. The same product is usually sold in Japan at a higher price so the
Japanese company doesn't go bankrupt. This lets the Japanese companies increase
their marketshare as foreign buyers tend to buy the lowest price quality
product. This places stress on non-Japanese competition. Sometimes the foreign
competition is a well deserved target (ie. poor quality US autos), but more
often they are not. Once the foreign competition has given up, or has been
sufficiently weakened and the Japanese dominate that industry, they bring the
prices to a level reflecting cost of manufacture and development and move on
to the next market they want to take over. Using this technique, the Japanese
can enter and take over in a short while, almost any industry they choose no
matter how unrelated (which they have done). Their system is virtually
foolproof as long as you have trading partners and individual consumers who
tolerate or don't understand the dynamics of what's really happening.

     It should be noted that raising the price of a good within Japan in order
to pay for dumping in the foreign country is becoming less and less prevalent
as the Japanese companies today have enough cash to finance dumping in the
foreign country strictly from cash reserves. Once they have wiped out the
foreign competition, the profits start to roll in.

     In some ways this is America's fault as Japan has taken advantage of the
open US market, as well as America's tolerance to Japan's closed market in
order to help them rebuild their country after WWII. Ironically, America's best
scientists and engineers are working for military projects, whereas Japan's are
working on commercial ventures, where the war is actually being waged.

SUCCESS DOESN'T ALWAYS COME THE FIRST TIME:

     Sometimes, the Japanese will fail at first to enter a market. For example,
the Japanese auto companies entered, and retreated from the US auto market
several times before making their successful onslaught. During the intervals
that they were not so active in the US market, they were learning from their
mistakes, improving, refining and testing their products in their protected
home market, preparing to enter the US market again at a later time, which
ultimately they did.

     This strategy is still used today. For example, recently the Hitachi
company, a major Japanese telecommunications maker announced it was withdrawing
from the US telephone switching market (large specialized computers used by
telephone companies to make your phones work). It would be foolish on the part
of the US telecommunications makers to believe that they have defeated Hitachi
(some actually believe they have) because telecommunications is a Japanese
government designated target strategic industry and Hitachi will most certainly
be in it in the future (as they have for 40 years). As happened in the auto
industry, Hitachi is at home right now refining and improving their products
based on what they learned from their last campaign in America. They will be
back stronger than before. I know this because I saw some of their new and
upcoming products when I was Japan. Once their improvements are complete and
proven in the home market, they will re-enter the US market, possibly
surprising America's domestic makers.

(Continued in part 2/2 (JAPANYES; FTP: monu6.cc.monash.edu.au in:pub/nihongo))