Cultural Translation of Management Philosophy in Asian Companies: Its Emergence, Transmission, and Diffusion in the Global Era 9811502404, 9789811502408, 9789811502415

This book discusses management philosophy based on case studies in companies in Japan, Korea and China. In an era of inc

893 50 3MB

English Pages 166 Year 2020

Report DMCA / Copyright

DOWNLOAD FILE

Polecaj historie

Cultural Translation of Management Philosophy in Asian Companies: Its Emergence, Transmission, and Diffusion in the Global Era
 9811502404,  9789811502408,  9789811502415

Table of contents :
Preface......Page 6
Contents......Page 9
About the Contributors......Page 11
1.1 Introduction......Page 14
1.2.1 “Management Philosophy” in Preceding Studies......Page 16
1.2.2 Perspectives on Management Philosophy in This Study......Page 18
1.3.1 Konosuke Matsushita’s Management Philosophy and Process for Overseas Expansion......Page 19
1.3.2 Expansion into Indonesia and Transmission of the Management Philosophy......Page 20
1.3.3 Expansion into Taiwan and Transmission of the Management Philosophy......Page 21
1.3.4 Expansion into China and Transmission of the Management Philosophy......Page 22
1.4 Conclusion: Transmission of Management Philosophy as “Cultural Translation”......Page 23
References......Page 25
Chapter 2: Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its Management Philosophy: The Power to Realize the “Dream”......Page 26
2.2 Honda’s Overseas Expansion......Page 27
2.3.2 Structure of Management Philosophy......Page 29
2.4.1 Partial Revision Due to the Overseas Transmission of the Fundamental Beliefs......Page 32
2.5 The Propagation of the Management Philosophy......Page 33
2.5.1 Honda Version of the Bible: Top Talks......Page 34
2.5.2 The Propagation of Honda’s Philosophy Through Education and Training......Page 35
2.5.3 The Practice of the Management Philosophy......Page 36
2.5.4 Propagation to Overseas Employees and Overseas Offices......Page 37
2.6 Conclusions......Page 41
References......Page 43
3.1 Introduction......Page 44
3.2 Research Method......Page 45
3.3.1 The Rakuten Company......Page 46
3.3.2 The Founding of Rakuten......Page 47
3.3.3 Creation of a Corporate Philosophy......Page 49
3.4.1 Changes as a Result of Globalization (Englishnization)......Page 51
3.4.2 Providing Higher-Quality Service......Page 54
3.5.1 Empowerment as a Core Value......Page 55
3.5.2 Merchant First as a Core Value......Page 56
3.6 Conclusion......Page 57
Websites......Page 58
4.1 Introduction......Page 59
4.2 Perceptions of the Corporate Philosophy......Page 60
4.3 History of Olympus......Page 61
4.4 Corporate Philosophy of Olympus......Page 66
4.5 Globalization and the Corporate Philosophy......Page 70
4.6 Evolution of the Corporate Philosophy......Page 73
4.7 Cultural Translation of Olympus’s Corporate Philosophy......Page 76
References......Page 79
5.1 Introduction......Page 81
5.2 Analytic Framework......Page 82
5.3 The Case of Matsushita Electric Industrial and Its Chinese Branch Offices......Page 84
5.3.1 The Systemic Impact of State-Managed Enterprises......Page 85
5.3.3 Delegating Authority to Local Employees and Fostering Independence......Page 86
5.3.4 Chinese Laws on Labor Contract and High Mobility......Page 87
5.4.1 “Common Sense” About Overtime in Japan and the United States......Page 88
5.4.2 The “Common Sense” of Fairness and Rights......Page 89
5.4.4 Japanese Uniformity and American Values......Page 90
5.5 Telecommunications Precision Equipment Manufacturing Company B and Its Chinese Branch Offices......Page 91
5.5.1 China’s Education and Predictive Capabilities......Page 92
5.5.2 The Independence of Local Employees......Page 93
5.5.4 The “Common Sense” of Internal and External Labor Markets......Page 94
5.6 A Case in Silicon Valley, North America......Page 95
5.6.2 Views on Employment in Silicon Valley......Page 96
5.6.3 Consideration for Appealing Jobs and Research and Development in Regions of High Mobility......Page 97
5.6.4 Mobility and Mission Statements......Page 98
5.7.1 Summary......Page 99
5.7.2 The Cultivation of Social Humans as Transmitters of the Management Philosophy......Page 100
References......Page 101
6.1 Introduction......Page 103
6.2 The History and Business Philosophy of the Yakult Group......Page 104
6.3.1 The Birth of the Yakult Lady Dealer System......Page 106
6.3.2 The Yakult Lady Dealer System......Page 107
6.3.3 The Spread of the Yakult Lady Overseas......Page 108
6.4 The Changing Position of the Yakult Lady......Page 109
6.4.1 Freeing Themselves from Being the Seller: The Case of Kobe Yakult......Page 110
6.4.2 Health, Benefit, and Hospitality Company: Case of Hyogo Yakult......Page 112
6.5 Conclusion......Page 115
Websites......Page 116
7.1 Introduction......Page 117
7.2.1 Basic Information......Page 118
7.2.2 Founding of Fotile......Page 120
7.2.3 Business Succession......Page 123
7.3.1 Stipulation of a Management Philosophy......Page 125
7.3.2 Introduction of Confucianism......Page 127
7.4 Implication of the Fotile Case......Page 129
References......Page 131
8.1 Introduction......Page 133
8.2.1 Founder: Lee Byung-Chull......Page 134
8.2.2 Successor: Lee Kun-Hee......Page 135
8.2.3 The Second Foundation and the New Management......Page 136
8.3 Samsung’s Management Philosophy......Page 138
8.3.1 Prioritizing Human Resources......Page 139
8.3.2 Samsung’s Control Tower......Page 140
8.3.3 Samsung’s Value System......Page 141
8.4.1 Nishikigoi and Catfish......Page 142
8.4.3 Twenty-Five Nights, 26 Days, and a Mass Game......Page 143
8.4.4 Samsung Man and the Worker Ant......Page 144
8.4.5 The Principle of Competition and the Principle of Reward and Punishment......Page 145
8.5 Conclusion......Page 146
References......Page 147
9.1 Introduction......Page 148
9.2.1 LG’s Inception and its Spirit of Harmony......Page 149
9.2.3 Practicing Jeong-do Management......Page 150
9.3.1 LG Electronics Before the Asian Financial Crisis......Page 151
9.3.2 Selection and Focus After the Asian Financial Crisis......Page 152
9.3.3 From Expanding Scales to Internal Reinforcement......Page 154
9.4.2 Advances into Emerging Markets......Page 155
9.5.1 LG Electronics’ Brand Value Creation......Page 157
9.5.2 Design Management......Page 158
9.5.3 Building a Market-Oriented Technological Competitiveness......Page 160
9.6 Conclusion......Page 161
References......Page 162
Websites......Page 163
Index......Page 164

Citation preview

Translational Systems Sciences 21

Izumi Mitsui Editor

Cultural Translation of Management Philosophy in Asian Companies Its Emergence, Transmission, and Diffusion in the Global Era

Translational Systems Sciences Volume 21 Editors in Chief Kyoichi Kijima, Tokyo, Japan Hiroshi Deguchi, Yokohama, Japan Editorial board Shingo Takahashi, Tokyo, Japan Hajime Kita, Kyoto, Japan Toshiyuki Kaneda, Nagoya, Japan Akira Tokuyasu, Tokyo, Japan Koichiro Hioki, Okayama, Japan Yuji Aruka, Hachioiji, Japan Kenneth Bausch, Riverdale, GA, USA Jim Spohrer, San Jose, CA, USA Wolfgang Hofkirchner, Wien, Wien John Pourdehnad, Philadelphia, PA, USA Mike C. Jackson, Hull, UK Gary S. Metcalf, Atlanta, GA, USA Marja Toivonen, Helsinki, Finland Sachihiko Harashina, Ichikawa, Japan

In 1956, Kenneth Boulding explained the concept of General Systems Theory as a skeleton of science. He describes that it hopes to develop something like a “spectrum” of theories—a system of systems which may perform the function of a “gestalt” in theoretical construction. Such “gestalts” in special fields have been of great value in directing research towards the gaps which they reveal. There were, at that time, other important conceptual frameworks and theories, such as cybernetics. Additional theories and applications developed later, including synergetics, cognitive science, complex adaptive systems, and many others. Some focused on principles within specific domains of knowledge and others crossed areas of knowledge and practice, along the spectrum described by Boulding. Also in 1956, the Society for General Systems Research (now the International Society for the Systems Sciences) was founded. One of the concerns of the founders, even then, was the state of the human condition, and what science could do about it. The present Translational Systems Sciences book series aims at cultivating a new frontier of systems sciences for contributing to the need for practical applications that benefit people. The concept of translational research originally comes from medical science for enhancing human health and well-being. Translational medical research is often labeled as “Bench to Bedside.” It places emphasis on translating the findings in basic research (at bench) more quickly and efficiently into medical practice (at bedside). At the same time, needs and demands from practice drive the development of new and innovative ideas and concepts. In this tightly coupled process it is essential to remove barriers to multi-disciplinary collaboration. The present series attempts to bridge and integrate basic research founded in systems concepts, logic, theories and models with systems practices and methodologies, into a process of systems research. Since both bench and bedside involve diverse stakeholder groups, including researchers, practitioners and users, translational systems science works to create common platforms for language to activate the “bench to bedside” cycle. In order to create a resilient and sustainable society in the twenty-first century, we unquestionably need open social innovation through which we create new social values, and realize them in society by connecting diverse ideas and developing new solutions. We assume three types of social values, namely: (1) values relevant to social infrastructure such as safety, security, and amenity; (2) values created by innovation in business, economics, and management practices; and, (3) values necessary for community sustainability brought about by conflict resolution and consensus building. The series will first approach these social values from a systems science perspective by drawing on a range of disciplines in trans-disciplinary and cross-cultural ways. They may include social systems theory, sociology, business administration, management information science, organization science, computational mathematical organization theory, economics, evolutionary economics, international political science, jurisprudence, policy science, socioinformation studies, cognitive science, artificial intelligence, complex adaptive systems theory, philosophy of science, and other related disciplines. In addition, this series will promote translational systems science as a means of scientific research that facilitates the translation of findings from basic science to practical applications, and vice versa. We believe that this book series should advance a new frontier in systems sciences by presenting theoretical and conceptual frameworks, as well as theories for design and application, for twenty-first-century socioeconomic systems in a translational and transdisciplinary context.

More information about this series at http://www.springer.com/series/11213

Izumi Mitsui Editor

Cultural Translation of Management Philosophy in Asian Companies Its Emergence, Transmission, and Diffusion in the Global Era

Editor Izumi Mitsui College of Economics Nihon University Chiyoda-ku, Tokyo, Japan

ISSN 2197-8832     ISSN 2197-8840 (electronic) Translational Systems Sciences ISBN 978-981-15-0240-8    ISBN 978-981-15-0241-5 (eBook) https://doi.org/10.1007/978-981-15-0241-5 © Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

This book is an inheritance of the following two books published in this series in terms of anthropological approach. The titles of these books are: H.  Nakamaki, K.  Hioki, I, Mitsui, and Y.  Takeuchi (Eds.), Enterprise as an Instrument of Civilization: An Anthropological Approach to Business Approach (2016), and H. Nakamaki, K. Hioki, N. Sumihara, and I. Mitsui (Eds.), Enterprise as a Carrier of Culture; An Anthropological Approach to Business Administration (2019). At the beginning, I will give a brief introduction of our research, which is foundation for this book. The starting point of our research was “A study of management philosophy on Japanese companies” conducted from 2006 to 2008 with the support of Matsushita Memorial Library and PHP Institute. The results were published in 2008  in N.  Sumihara, I.  Mitsui, and Y.  Watanabe (Eds.), Keiei-rinen; Keisyo to Denpa no Keieijinruigaku-teki Kenkyuu (Management philosophy: Business anthropological Approach of succession and propagation of management philosophy) (in Japanese). In 2011, a Chinese translation of the book was published. Then, from 2009 to 2012, we received support from the China-Asia Research Center of Nihon University, College of Economics. These achievements were published as Mitsui, I. (Ed.), Asia Kigyou no Keiei-Rinen; Seisei- Denpa-Keisyo no Dainamism (The Emergence, Transmission, and Diffusion of the Management Philosophy in Asian Companies) (in Japanese) (2013). From 2012 to 2015, it was supported by the Research Institute of Konan University. From 2016 onward, a part of our research has been supported by JSPS KAKENHI Grant Number JP16K03898. This book is a compilation of the above-mentioned studies and is an extension of the previous work. The research issue of “management philosophy” has been very important for management studies. But many researchers of management studies have kept distance from the issue, because management philosophy is not based on the scientific side of management phenomena, but on the value side. In addition, the issue focuses on the invisible side of management, including philosophy of entrepreneur, corporate culture, organizational climate, business ethics, among others. Even though excellent researches of this issue have been appeared in fields such as business

v

vi

Preface

h­ istory, organization theory, or sociology, I’m afraid it has not been possible to construct a solid academic field. However, in the remarkable progress of globalization and the internet society that has continued from the late twentieth century to today, it is time for companies to reexamine their mission and existence. Repeated corporate scandals and the deterioration of global environmental issues have revealed the need for CSR (corporate social responsibility) and business ethics. Cross-cultural conflicts at work highlight an importance of management to understand and integrate multiple values. In other words, the importance of the issue of value in a company is reconsidered. At such times, we thought it was necessary to reevaluate the problem of the management philosophy on the horizon of the global society. The greatest feature of our research team is that it is composed of interdisciplinary members consisting of not only management studies but also cultural anthropology, sociology, and religious studies. In addition, some members have experience working as employees or managers at global companies. There they were doing “participant observation.” Therefore, this research is also based on collaboration between academia and industry. The background to enabling collaborative research in such different fields was the common methodological foundation named Anthropology of business administration, which is an interdisciplinary research started with Hirochika Nakamaki (a Professor Emeritus of the National Museum of Ethnology) and Koichiro Hioki (a Professor Emeritus of Kyoto University) as collaborative research of the National Museum of Ethnology in Suita, Japan, from 1993. A brief explanation of the methodology is as follows. As a fundamental point of view, we understand the corporate organization not only as an economic rational functional entity but also as a cultural and non-rational entity with a community aspect. Then, I tried to reconsider the actual state of management from the “overall” perspective including the interaction between those two entities. As a research method, we emphasize field research and participant observation that are used in cultural anthropology, and emphasize ethnography as a description method. This research on management philosophy basically inherits such a method. One of the most impressive experiences since we started our research is International Symposium on The Emergence, Transmission and Diffusion of the Management Philosophy in Asian Companies jointly hosted by The Center for China and Asian Studies, College of Economics, Nihon University and School of Modern Languages and Cultures, the University of Hong Kong on November 5 to 6, 2011. The symposium was an unprecedented conference in which “intercultural” participants, who are Japanese and Chinese researchers and practitioners, thoroughly discussed the management philosophy. Several months prior to the meeting, we held in-depth meetings among our core members and prepared a brief summary in English, Chinese, and Japanese to allow deeper discussions. From the Japanese side, in addition to our research team, experienced leaders from overseas branches of Panasonic and Honda, who appear in this book,

Preface

vii

p­ articipated. From the Chinese side, young researchers and mid-level leaders from Sony and Microsoft’s Chinese branch joined, and hot discussions on management philosophy were held. The interpreter’s ability was high, but sometimes we became acquainted with each other to forget that we were speaking in different languages. Through this symposium, we realized that research on management philosophy is now required in not only Asia but also all over the world, and reconfirmed the significance of our research. This experience has been the driving force of the research for each member. Although the age when Japanese companies ran within the leading group of Asia has passed, it is no doubt that the twenty first century is “the age of Asia.” On the other hand, the relationship among Asian countries is not necessarily good. For such a time, it is necessary for us to make efforts to understand each other by various viewpoints. We hope that this study would be a small step toward that and would also be a promise to make further our efforts. In the process of each study, we have had cooperation from many people, domestic and abroad. As their names will be mentioned in each chapter, I would not raise all names here but would express our heartfelt thanks to all cooperators. I should not forget to acknowledge the late Morio Kawagoe, who was an ex-director of Matsushita Memorial Library, with deepest appreciation. He was a founding father of our study of management philosophy. By his assistance, our study has been supported in research matter by the PHP institute and Matsushita Foundation for Management and Social Sciences since then. I would also like to thanks Yoshiyuki Takeuchi, my partner, for his ungrudging editorial support. Finally, I would like to express special thanks to Yutaka Hirachi of Springer Japan and Raagai Priya Chandrasekaran and other staffs of SPi Global. Without their patience and understanding, this volume could not be published. This book has been published with support of the many people mentioned above Its success will be theirs, but failure is mine, the editor. Tokyo, Japan  Izumi Mitsui July, 2019

Contents

1 What Is Cultural Translation of Management Philosophy?������������������    1 Izumi Mitsui 2 Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its Management Philosophy: The Power to Realize the “Dream”����������������������������������������������������������   13 Masataka Kosugi, Izumi Mitsui, and Tatsuya Deguchi 3 The Creation of a Corporate Philosophy in a Japanese E-Commerce Company: A Case Study of Rakuten��������������������������������   31 Yasuhiro Watanabe and Kazuhito Isomura 4 Changes to the Corporate Philosophy in Response to Corporate Globalization: A Case Study of Globalization in Olympus��������������������������������������������������������������������������������������������������   47 Masahito Kitamura and Tetsuya Takahashi 5 Transmission of Management Philosophy: Beyond the Differences in Customs and Norms in Foreign Cultures ����������������   69 Masayo Fujimoto 6 The Philosophy of the Yakult Group and Its Propagator, the Yakult Lady������������������������������������������������������������������������������������������   91 Akiko Okuno 7 A Sociological Approach to Management Philosophy of Chinese Family Businesses in a Transition Period: The Case of Ningbo Fotile Group������������������������������������������������������������  105 Mitsuo Kawaguchi

ix

x

Contents

8 Practicing the Company Philosophy to Survive: The Competitive World of Samsung Group��������������������������������������������  121 Hiroshi Iwai 9 Asian Financial Crisis and LG Electronics Paradigm Shift������������������  137 Seongbong Hong Index���������������������������������������������������������������������������������������������������������  153

About the Contributors

Tatsuya Deguchi  is a Professor in the Faculty of Tourism at Wakayama University. His resent research interests focus on tourism management and destination management organization. He is a  coauthor of Case Study Business Model Thinking (in Japanese) (2007), Gendai no Kankō to Brand [Contemporary Tourism and Brand] (in Japanese) (2012), Kokokara hajimeru Kankō-gaku [Tourism Science Starting from Here] (in Japanese) (2016). Masayo Fujimoto  is a Professor of Social Studies at Doshisha University. She is specializing in sociology of professions. Her research interests are relation among many professional attitude, organization, and social environment. In particular, her surveys focus on the cohesion or mobility of the work place. She is the author of Semmonshoku no Tenshoku Kōzō: Soshiki Junkyosei to Idō [Structure of Career of Professionals: Reference to Organization and Mobility] (in Japanese) (2005). She is also a coauthor of Sangyō Shūsekichi no Keizoku to Kakushin: Kyoto Fushimi Shuzōgyō he no Shakaigakuteki sekkin [Continuation and Innovation of Industrial Cluster: Sociological Approach to Kyoto Fushimi Shuzo industry] (in Japanese) (2010). She is a  coauthor of Asia-kigyō no Keieirinen: Seisei Denpa Keishō no Dynamism [Management Philosophy of Asian Companies: Dynamism of Creation, Diffusion, and Succession] (in Japanese) (2013). Seongbong  Hong  is an Assistant Professor in the Faculty of Business Administration, Shujitsu University. His research interests include competitive strategy in international business, and recent research focuses on Asian family company. He is the author of “Indo tekkō cluster Jamshedpur no keisei to hatten: minkan toshi unei kaisya JUSCO no jirei” [Formation and Development of Indian Iron and Steel Cluster Jamshedpur: A Case of Private Urban Management Company JUSCO] (in Japanese) (The Doshisha Business Review 68(1, 2), 2016), and “Kōkū uchū sangyō no supply chain ni okeru kokusai kyōdō jigyō: B787 no kaihatsu seisan buntan hōshiki to risk” [International Joint projects in Supply Chain of Aerospace Industry: Development and Manufacturing Sharing System for Boeing 787 and its Risks] (in Japanese) (The Doshisha Business Review 69(5), 2018). xi

xii

About the Contributors

Kazuhito Isomura  is a Professor of Organizational Behavior at Chuo University, Tokyo, Japan. He earned a BA, an MA, and a PhD at Kyoto University, Japan. He is a leading researcher on Chester Barnard’s management thought in Japan. His areas of research are leadership development, corporate strategy, knowledge management, and management history. He is the author of Soshiki to Ken-i: Soshiki no Keisei to Kaitai no Dynamism [Organization and Authority: Dynamism of Organizing and Disorganizing] (in Japanese) (2000) and Senryaku Model wo Design suru [Designing Strategic Models] (in Japanese) (2018), and a coauthor of Barnard (in Japanese) (2011). Hiroshi  Iwai  is a Professor of Sociology and Religious Studies at Tezukayama University. His recent research focuses on the management of secrets in religions and in companies. He is the coauthor of Enterprise as an Instrument of Civilization: An Anthropological Approach to Business Administration (2016), Enterprise as a Carrier of Culture: An Anthropological Approach to Business Administration (2019), and Globalizing Asian Religions: Management and Marketing (2019). Mitsuo  Kawaguchi  is a Professor of Sociology at Tezukayama University. His recent research focuses on corporate culture and family business succession in East Asian societies. He is the author of Kakusei sareru Hito to Tochi no Kioku: Taiwan Silicon Valley no Rūtsu Sagashi [Awakened Memories of the People and the Place: Exploring the Roots of Taiwan’s Silicon Valley] (in Japanese) (2019) and the coauthor of Bainian Chuancheng de Mimi: Riben Jingdu Bainian Qiye de Jiaye Chuancheng [The Secrets of Succession over 100 years: Family Business Succession in Kyoto-Based Old-Established Companies] (in Chinese) (2015). Masahito Kitamura  is a PhD student of Graduate School of Economics, Nihon University. He received an MBA from GLOBIS University. His research interests are mainly the management philosophy and corporate social responsibility in the age of corporate globalization. He has been working at the Olympus Corporation since 1982, and is currently the Chief Information Security Officer. He has also experienced several positions in Olympus such as the Chief Compliance Officer, the division manager of Information Technology, and Corporate Social Responsibility. Masataka Kosugi  is former Vice President (Admin.) of Honda of America Mfg., Inc. and Vice President of Asian Honda Motor Co., Ltd. and was a Concurrent Professor of International Politics and Economics at Nishogakusha University Graduate School. His recent research focuses on “Cross Cultural Management.” He is a coauthor of Asia Kigyō no Keiei Rinen: Seisei Denpa Keishō no Dynamism [Management Philosophy of Asian Companies: Dynamism of Creation, Diffusion, and Succession] (in Japanese) (2013). Izumi  Mitsui  is a Professor of Business Administration in the College of Economics, Nihon University. Her research interests include management philosophy, history of management thought, and anthropological approaches to business

About the Contributors

xiii

administration. She is the author of Shakaiteki Networking-ron no Genryū: MP Follett no Shisou [An Origin of Social Networking Theory: The Thought of MP Follett] (in Japanese) (2009), the editor of Asia-kigyō no Keieirinen: Seisei Denpa Keishō no Dynamism [Management Philosophy of Asian Companies: Dynamism of Creation, Diffusion, and Succession] (in Japanese) (2013), and coeditor of Enterprise as an Instrument of Civilization: An Anthropological Approach to Business Administration (2016), and Enterprise as a Carrier of Culture: An Anthropological Approach to Business Administration (2019). Akiko Okuno  is a Professor of Business Administration in Konan University. Her research interests include management philosophy, anthropological approaches to business administration, and the study of working women. Currently, her main research theme is the biases in performance evaluation of workers who have returned from maternity leave and parental leave. She is the author of Mokuhyō Kanri no Contingency Approach [The Contingency Approach of Management by Objectives] (in Japanese) (2004), “Yakult Lady no Hatarakikata to Jinjikanri” [Yakult Lady : How have they been working? How have they been managed?] (in Japanese) (Konan business review 57(3), 2016). Tetsuya Takahashi  is an Associate Professor in the department of business administration, Tokyo Fuji University, where he engages human resource management and management history. His research interests include Japanese management system and regulation by architecture. He is a coauthor of Tekisuto Keiei Zinruigaku [Textbook: Anthropology of Business Administration] (in Japanese) (2019). Yasuhiro Watanabe  is an Associate Professor of Business Administration in the Faculty of Business Administration, Tokyo Fuji University. His research interests focus on management philosophy, organizational culture, and institutionalization. He is a coauthor of Tekisuto Keiei Jinruigaku [Textbook: Anthropology of Business Administration] (in Japanese) (2019), and the author of “Soshiki Seiinsei no Keisei ni Kansuru Kōsatsu: Jōkyōteki Gakushūron Karano Sekkin” [A Study for Acquisition of Membership: An Approach from Situated Learning Theory] (in Japanese) (Journal of Management Philosophy 13(1), 2016).

Chapter 1

What Is Cultural Translation of Management Philosophy? Izumi Mitsui

Abstract  “Management philosophy” is one of the important themes that has drawn attention in business administration research; however, new issues have emerged with the global expansion of companies. An important issue, in particular, is the transmission and acceptance of management philosophy which is accompanied by establishing foreign sites of a company. How should the management philosophy of the headquarters be communicated to overseas branches that have different cultural and social backgrounds? What outcomes and issues will arise as a result of such transmission? In a different cultural situation, will the management philosophy be transmitted with the same meaning as in the home country? “Management philosophy” generally means a company’s action policy or the management’s beliefs and is often designated as a certain phrase; however, our research does not only cover these elements that have been “turned into text.” Instead, it is understood as a “dynamic process” that is “generated” through interactions with the surrounding environment, with a focus on the founders. Then, this is interpreted by those who accept it and “transmitted” through reinterpretation, and there is “succession” as times change over the years. The purpose of the research is to investigate the transmission of management philosophy from the viewpoint of “cultural translation.”

1.1  Introduction “Management philosophy” is one of the research issues that has drawn attention in management studies. Recently, new issues have emerged with the global expansion of companies. An important issue, in particular, is the transmission and acceptance of “management philosophy, corporate mission, and policy (hereinafter referred to as management philosophy),” which is accompanied by establishing foreign sites I. Mitsui (*) College of Economics, Nihon University, Tokyo, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_1

1

2

I. Mitsui

such as foreign branches and subsidiaries. How should the headquarter transmit its management philosophy to overseas branches that have different cultural and social backgrounds? What outcomes and issues will arise as a result of such transmission? In a different cultural situation, will the management philosophy be transmitted with the same meaning as in the home country? Does the transmission of the management philosophy not simply involve a translation of the text but also include the cosmology (view of the world) of the management itself and imply a “phase shift” in a new context? In addition, is the transmission of the management philosophy of a specific company that of the “business culture” itself, which was created under the influence of that company’s home country, or does it also include transmission to other cultures? “Management philosophy” generally is used in referring to a company’s action policy or the management’s beliefs and is often designated as a certain phrase. However, this book does not only cover these elements that have been “turned into text.” It can also be understood as a “dynamic process” that is “generated” through interactions with the surrounding environment, with a focus on the founders. Then, this is interpreted by those who accept it and “transmitted” through reinterpretation, and there is “succession” as times change over the years. In addition, the philosophy is interpreted and embodied through the actions of each individual. As a result, the process manifests its philosophy in the company’s business content—its products, services, management processes, and so on. To clarify this dynamic process, our studies are conducted with an emphasis on qualitative research, participant observation, and long-term interviews by an interdisciplinary research team composed of members from fields such as management study, anthropology, and sociology. The studies reveal that the transmission of management philosophy is not solely based on the interpretation and reinterpretation of the philosophy by the parties but is the process of “cultural translation” in the “space” where different cultures are met. Additionally, this process leads to the “creation of a new culture.” I would like to explain this concept of “cultural translation” according to the theories of the cultural anthropologists by Tamotsu Aoki and Keiji Maegawa. Aoki wrote the following based on the ideas of Edmund Leach,1 “Leach states that cultural translation is not simply the transfer of language, but to translate the poetic meaning into the cultural language of another; however, the methodology to resolve this type of issue has not yet been established. This is not considered to be an application of linguistic theory and also does not seem to follow conventional linguistic anthropological theory. It seems that this problem belongs to an area in which quantitative and technical operations cannot necessarily be applied” (Aoki 1978, p. 43). In addition, Aoki holds that when cultural anthropologists try to understand an idea, they must attempt to share the meaning in the “language−recognition−action triangle.” Furthermore, for those particular words and expressions at the time, both of “logical−structural” understanding and “intuitive−metaphorical” understanding are existed, and these cannot be separated from the cultural ­translation. Aoki said that cultural anthropologists always face this dualism (Aoki 1978, p. 44).  Leach (1976).

1

1  What Is Cultural Translation of Management Philosophy?

3

It was Keiji Maegawa who further developed this idea of “cultural translation.” Maegawa regards the issue of a place where different cultures meet, or when culture meets civilization and a new culture is created, as the issue of “cultural interface.” He explains the translational process of culture that occurs here with the phrase “from translation to displacement” (Maegawa 2012). According to Maegawa, translation “actively captures the process of transformation for the target society based on a articulation of culture under the influence of a strong external society, from within the transforming society, and indicates practical cognition, or cognitive practice.” On the other hand, displacement means to “go one step further in the phase of transformation, according to cultural demand, based on the society’s epistemology of ‘rereading,’ and it indicates the practical actions that are consciously involved in the phase of transformation” (Maegawa 2012, p. 22). In particular, at the field where (national) development takes place, Maegawa emphasizes the importance of the perspective of displacement from cognitive practice to practical action. Furthermore, he focuses on the process in which a new culture is created (Maegawa 2012, p. 22). The above can be summarized as follows. First, cultural translation is not simply a transfer of language. Second, to understand the ideas of a different culture, it is necessary to share the meaning in the “language−recognition−action triangle.” Third, there are a “logical−structural” understanding and an “intuitive−metaphorical” understanding of specific words and expressions, and the two cannot be separated from cultural translation. Fourth, there are two methods for translational process of culture, translation and displacement. Translation is a method of “practical cognition,” or “cognitive practice,” that actively captures the process of transformation of the target society from within the transforming society. In comparison, displacement is the “practical action” that is consciously involved in the transformation of a society. Fifth, through these cultural translations, new cultures would be created. In this book, we will examine the transmission of management philosophy in Asian companies, based on the above framework of “cultural translation” with some case studies.

1.2  This Book’s Perspective on Management Philosophy 1.2.1  “Management Philosophy” in Preceding Studies Studies on management philosophy in Japan have begun in the 1950s and reached a peak in the late 1960s and 1970s, when Japanese companies began to expand overseas. Kaoru Takada, a representative scholar of this period, explains management philosophy as follows. Management philosophy is one of the factors that form the management’s goal along with the management’s purpose and indicates the “management creed,”

4

I. Mitsui

“management belief,” and “management ideals.” Furthermore, Takada stated that the management philosophy is the “perspective of management” when a manager carries out corporate management activities and includes the perspective of (1) environment (societal perspective), (2) management goal, (3) management organization, and (4) business economy. In addition, Takada stated that the significance of management philosophy lies in the following four points: (1) regulatory effects on management goals, (2) regulatory effects on management organization, (3) regulatory effects on management and economics, and (4) supervisory effects on management economics and management organization (Takada 1978, pp. 14–15). Another representative scholar of management philosophy is the business historian Keiichiro Nakagawa, who explained management philosophy as follows. It is defined based “on society’s business elite, that is, the opinions expressed by a manager’s view of their own corporate management.” The issue is not of the management’s subjective attitude; rather, “it is a point of view that the manager has announced to society in the form of a document or a lecture, and in that respect, it must be distinguished from the potential aspects of a culture, so to speak, such as the values and personal beliefs held by the manager” (Nakagawa 1972, pp. 10–15). Furthermore, Nakagawa has indicated that management philosophy must be understood in relation to the (1) underlying ideas and behavioral patterns (cultural structure), (2) economic development and historical characteristics of the society, and (3) organizational and institutional aspects of companies. The viewpoints that the two scholars mentioned above have two important perspectives that continue to be used in today’s theories on management philosophy. One is that management philosophy is a certain sense of values such as “beliefs,” “faith,” and “ideals” that are inherent in the organization, and while it is “invisible,” through the action of management, there is an aspect that “moves visible objects.” The other is that the official opinion expressed by management (or a declaration based on an agreement in the organization), which is not simply an expression of an individual’s subjective attitude, having some kind of rationality (reasonableness) or sociality. Furthermore, these must be considered in relation to contexts such as culture, history, and society. In addition, the above studies are thought to be based on the following shared assumptions: a management philosophy consists of words and ideas that were “given” by the founders or by the company itself, and in the changing environment surrounding companies, it also comprises “words” and “beliefs” that are stipulated by “certain rules.” This assumption has been inherited by today’s research on management philosophy in Japan. However, we think that we cannot capture the “actual situation” of management philosophy by the meaning above.

1  What Is Cultural Translation of Management Philosophy?

5

1.2.2  Perspectives on Management Philosophy in This Study In our studies, it is not so important whether management philosophy has been “documented” or not. Even if there is no documented philosophy, there are companies that have some sort of beliefs or ideas that are continuously communicated, and this has an influence on their employees. Letters and words themselves are only “text,” and we feel that this is only one part of the “phenomena” of management philosophy. Rather, to be precise, it includes the “interactions” between the letters and words that make up the text and the people who work to “interpret and reinterpret” it. Say in other words, we think that the reality of management philosophy is “the dynamism of such interactions.” Even if the text does not change, its interpretation can change depending on the individual who receives it or the period and environmental changes surrounding the organization. Our perceptions of management philosophy can be summarized as follows: 1. Management philosophy is used in referring to an organization’s beliefs and basic guiding principles but should not be understood simply as something that is documented; rather, it should be understood as a “continuing dynamic process,” from its formation to its spread and to when it results in actual actions. 2. Until the philosophy is formed, the historical, societal, and cultural background and business activities surrounding the founders and those who established the business have an impact, and the management philosophy should be understood as being “generated” by the interactions of these factors. 3. Even in cases where the management philosophy has been stated in writing, in order for it to turn into action, there is a process of “interpretation” and “reinterpretation” by the people who accept it. 4. The management philosophy that has spread through an organization does not only function as standards of conduct for the organization’s members but is also embodied in the products and services themselves and in specific management activities. 5. The management philosophy reflects the organization’s unique “worldview (cosmology)”—perspectives on time and space—and in addition to this, the influence of climate and culture and the spirit of the times also interact with each other. Due to this, the social significance of the corporate existence is recognized. 6. For the reasons stated above, we understand management philosophy as the process (space−time diffusion of the actual condition of the philosophy) of “generation,” “continuation” (temporal spread), and “transmission” (spatial spread). In this book, studies are conducted on specific cases of Asian companies based on the above perceptions regarding management philosophy. Before showing the individual cases of each chapter, I would like to show a representative case of when overseas transmission of management philosophy is perceived from the viewpoint of “cultural translation.”

6

I. Mitsui

1.3  W  hat Is Meant by the Transmission of Management Philosophy as a “Process of Cultural Translation”?: A Case Study on the Overseas Expansion of Panasonic (Formerly Matsushita Electric) 1.3.1  K  onosuke Matsushita’s Management Philosophy and Process for Overseas Expansion The management philosophy of Matsushita Electric Industrial Co., Ltd. (MEI hereafter; now Panasonic) founder Konosuke Matsushita has had an influence on managers in many Asian countries as well as in Japan. His basic idea was “mutual prosperity.” However, in the situation of overseas expansion, it meant “development of that country” and “mutual prosperity with that country.” The foundation for achieving this was the basic management philosophy of MEI, which consisted of “basic management objective,” “company creed,” and “the seven principles of patriotic industries” (Mitsui 2013, pp. 33–61). In this chapter, we pick up MEI, a manufacturer that represents Japan and is a global company approaching its 100th anniversary. Among the overseas locations of MEI established between the 1950s and the 1980s, we will highlight Indonesia, Taiwan, and China. Based on our long interviews with those management leaders who put in a great deal of effort in setting up these locations, we will introduce how they transmitted MEI’s management philosophy from the “perspective of cultural translation.” MEI has been actively engaged in overseas development, especially in Asia, since the early Shōwa era. In 1959, Matsushita Electric Corporation of America was established, and National Thailand was established in 1961. These marked the beginning, and from the 1960s onward, MEI expanded into international markets. From the prewar period to the postwar period, many Japanese manufacturers exported products through general trading companies. Under these circumstances, MEI set up a “Trading Department” in 1932 and started export operations with its own organization and staff. This was eventually spun into its own business in 1935 and became “Matsushita Electric Trading Corporation,” and until it merged again with MEI in 1988, it continued to export Matsushita Group products around the world. A major problem concerning the management of overseas offices during this time was communication with head office, and the managers of the overseas subsidiaries made efforts to adapt the management philosophy of MEI to the local area.

1  What Is Cultural Translation of Management Philosophy?

7

1.3.2  E  xpansion into Indonesia and Transmission of the Management Philosophy In 1970, due to a joint venture between MEI and Mohammad Gobel, “National Gobel” (currently Panasonic Gobel Indonesia) was established. The capital stock was 1.2 million dollars, and the contribution ratio was 60% from MEI and 40% from Mr. Gobel. The company started with 130 employees and was engaged in the production of radios. Hajime Kinoshita, who had been involved since before the establishment of the company, said that he was told by Konosuke Matsushita at the time of the establishment, “When doing business overseas, you must contribute to the development of the country and work to benefit the people of that country. Keep working hard, as if you had married Mr. Gobel.” He stated that at the time, it was typical of MEI to place importance on maintaining warm relationships, as if the entire company were a “big family,” and in the case of National Gobel, there was a widespread desire to create a family-like atmosphere. In addition, the chokai (morning meeting), which is held every morning at MEI, was introduced when the overseas company began operations in 1970. As in Japan, the “basic management objective,” the “company creed,” and “the seven principles,” which are MEI’s basic management policies, are said in chorus, the company song is sung, impressions are announced, and after physical exercise, work begins. The chokai is a place to deepen communication, a place to share a sense of company values, and a place for employee training. Even at National Gobel, the results of the chokai were very fruitful, with high motivation and strong teamwork being developed. Furthermore, the start time for work, which had been relatively loose up to that point, became strict after the chokai was incorporated. In addition, MEI has a management philosophy called the “Suido Tetsugaku (tap water philosophy),” which was proposed by Konosuke Matsushita. This philosophy is that “the reason that a passerby can drink from a roadside tap without anyone objecting is because water is plentiful and cheap. Matsushita Electric can create happiness in the world by supplying an inexhaustible supply of goods that are as cheap as water from the tap.” When this was taught to the local employees, it was found that in Indonesia, water is a valuable resource, and rather than understanding the phrase, it had the opposite meaning. Therefore, Gobel and Kinoshita replaced “tap water” with “banana,” which is abundant in the region, and explained this as the “banana philosophy.” In addition, Gobel translated the meaning of “banana” into the symbol of productive power, durability, symbiosis, and continuous prosperity of Indonesia (Sumihara 2016, p.  94). Employees were then able to understand the meaning well. In this way, the introduction of MEI’s management philosophy and basic management policy raised the awareness of each employee, and National Gobel grew into a high-level manufacturing company. Of course, it is not as though the company became an exact replica of MEI in Japan, and Kinoshita said the following in our interview. “Bringing in MEI’s philosophy was like bringing a ‘good seed’ from Japan into Indonesia. However, just because a bright red plant with large flowers

8

I. Mitsui

might bloom from that seed in Japan, it does not mean that the same flower would bloom in Indonesia. …this is because the soil in Japan and Indonesia are different, and is not an issue of which is better or worse. It is important to grow beautiful flowers that are unique to Indonesia.”2 Kinoshita served as the president of the company from 1978 until his return to Japan in 1989. Afterward, his performance in the local area was highly rated, and he received service awards in both Indonesia and Japan.

1.3.3  E  xpansion into Taiwan and Transmission of the Management Philosophy The next case is that of Matsushita Electric Taiwan Co., Ltd. (currently Panasonic Taiwan Co., Ltd.). The joint venture partner in Taiwan was a local businessman named Hong Jianquan. In 1963, Masayuki Hori, who served as president, was appointed as a sales representative. A new team of employees was formed, and the first matter they put energy into was “human resources development.” This idea of “developing people before developing products” was an implementation of MEI’s management philosophy. First, just as in Indonesia, they held a chokai meeting each day. The “basic management objective,” the “company creed,” “the seven principles,” and the “company song” that are sung at the chokai were all translated into Chinese so that the meaning and the content could be understood. Rather than simply having everyone say the words in chorus, efforts were made to provide opportunities for interaction between Matsushita staff, including the president, and local employees and for the transmission of the philosophy and ideas of MEI. In addition to the enhancement of welfare benefits, group activities such as recreation and team sports were also incorporated outside of work. Based on these, it was possible to build smooth interpersonal relationships. It provided a change of pace and allowed people to channel more energy into their work. In terms of education and training for the sales department, Konosuke Matsushita’s books, Business Essentials and Career Essentials, were translated into Chinese, and coaching that began from the basics of business was provided. Through these, the value judgment on financial issues was taught, such as the importance of bill collection and how simple discounts could put pressure on management. Hori considered the 1973 oil crisis as an opportunity to exhibit the philosophy that “MEI values of employees.” First, he thought that it was important to dispel employee anxiety, and in accordance with Konosuke’s basic philosophy, Matsushita Taiwan declared that “there will be no dismissal of employees.” Regarding excess personnel, they were sent to support approximately 200 dealers across Taiwan. 2  This description is based on the following symposium: International Symposium on the Emergence, Transmission, and Diffusion of the Management Philosophy in Asian Companies (jointly hosted by the Center for China and Asian Studies, College of Economics, Nihon University and School of Modern Languages and Cultures, the University of Hong Kong) on November 5–6, 2011 in the University of Hong Kong.

1  What Is Cultural Translation of Management Philosophy?

9

There were two to three people per store, and with cleaning tools and a packed lunch in hand, they assisted in organizing and tidying the stores. To gain the support of each dealer, Hori went to each and every store to explain the situation. In some ways, this was difficult to understand given Taiwan’s cultural background. But as he went door to door, the company’s social value increased, and employee loyalty to the company also increased at the same time. Afterward, the turnover rate also decreased significantly. Hori said the following in conclusion, “If you go to a new place, you must respect the people and the national circumstances of the country, and each place is different. For example, the products should be changed to match the national character and the characteristics of the people. Only the management philosophy of MEI is unchanged to anywhere. Matsushita’s philosophy should not be changed, but national and ethnic characteristics are different everywhere, and by uniting these, one foreign subsidiary forms the standard in each place. Matsushita’s management philosophy can be applied globally.”

1.3.4  E  xpansion into China and Transmission of the Management Philosophy Konosuke Matsushita visited China several times after the normalization of diplomatic relations between Japan and China in 1972. Shunichiro Aoki was posted to Beijing from May 1979 and assisted President Yamashita. It was decided that the location of the factory would be in Beijing, the capital of China. Agreements were signed in 1987, and “Beijing Matsushita Color CRT Co., Ltd.” was established. Since establishment, initiatives in China have been conducted in line with the management philosophy of MEI. The chokai helped develop a high level of solidarity among the employees at Beijing Matsushita Color CRT. However, what is interesting here is that this was not recommended or taught by MEI. Instead, because the president had a deep respect for Chinese culture, which is also the origin of Japanese culture, he thought that the “basic management objective,” the “company creed,” “the seven principles,” and so on should not be forced onto the employees. Moreover, Yamashita told Aoki and his colleagues “communicate the technology properly and try to sell the products.” However, when 250 Chinese staff were undergoing training at Matsushita Electronics Corporation, they saw the Japanese employees holding the chokai meetings and they said, “This is very good. We would like to do this in China as well.” At the time, it was decided that the management philosophy should not only be translated into Chinese but also arranged in a Chinese way. For example, the seven principles were changed to the “ten principles to be followed,” with the addition of “the principle of friendly cooperation,” “the principle of respect for discipline,” and “the principle of a practical search for truth.” “Friendly cooperation” and “respect for discipline” can be understood by their literal meanings, and the “practical search

10

I. Mitsui

for truth” in Chinese means “to pursue the truth based on facts.” In addition, physical exercise was replaced with Chinese-style physical exercise. The principles that were in place there did not change the essence of MEI’s management philosophy, and at the same time, there was flexibility in consideration of the national character. Aoki, who has been involved in business in China for many years, discussed the ideals of the management philosophy as follows, “When doing business overseas, shouldn’t the concept of glocalization be incorporated in the management philosophy?” Glocalization is a word coined based on a mix of the term localization and the term globalization, meaning to become universal across the world. In keeping with the meaning of being universal, by arranging it to suit each location, I think that an authentic management philosophy can be achieved.

1.4  C  onclusion: Transmission of Management Philosophy as “Cultural Translation” As stated above, this was an introduction to the transmission of management philosophy that accompanied the expansion of MEI based on our interview records. I would like to look back on these case examples from the perspective of “cultural translation” as previously mentioned. Accordingly, cultural translation is not only the transfer of words; the meaning is shared within the “language−recognition−action triangle,” and for specific expressions, there are a “logical−structural” understanding and an “intuitive−metaphorical” understanding. It can certainly be understood that this occurs in the transmission of Matsushita Electric’s management philosophy. For example, as shown by Kinoshita in Indonesia, while it is possible to understand the metaphor of an “abundance of goods” behind the “tap water philosophy” in Japan, where water is plentiful and cheap, in Indonesia, where water is a precious resource, it takes on the opposite meaning. Therefore, because Kinoshita translated this into the “banana philosophy,” it was possible to convey the meaning to local employees. At first glance, this appears to be a transfer of language; however, in the local context, it can be understood “intuitively” and “metaphorically,” and it is communicated in a way that spreads like the sensation of touch on a person’s skin. In addition, if we are to refer to the differences in displacement and translation as stated above, rather than performing a translation as simple “cognitive practice,” we can see that the translation was connected to practical actions here. Furthermore, for the chokai that was used as a “device” to transmit the philosophy in all three cases, the meaning of the meeting was different in each place. In Indonesia, it served in forming the custom of “being punctual” regarding work. In other words, it means that in addition to fulfilling the role of time management, the chokai also functioned as an opportunity to create new discipline and workplace culture related to “being punctual” at this location.

1  What Is Cultural Translation of Management Philosophy?

11

In addition, in the example from China, the chanting of the “seven principles” was not actively promoted by the company; rather, it was requested by the employees in response to their experience of training in Japan. Here, there was an interesting example of changing the language into Chinese-style expressions, changing the seven principles to the ten principles, and changing the form and meaning of Matsushita’s management philosophy so that it would be accepted by local employees. This also shows the translation of the management philosophy is not only as a transfer of words but also an adaptation of form suited to the cultural context. Here as well, we can understand that the translation prompted not only cognitive practice but also practical action. An even more interesting example is the case of “dispatching cleaners with their lunch,” which is what Hori at Matsushita Taiwan did in response to corporate restructuring during the oil crisis. There is a narrative from MEI behind this in which Konosuke Matsushita did not force people to quit during the Great Depression. Hori “realized” this narrative in a different context, which was Taiwan during the oil crisis. While the act of “going to clean stores with lunchbox in hand” was also perceived as strange behavior in this different cultural environment, it seems that it also served as a transmission of the management philosophy as a new form of cultural translation that embodied MEI’s corporate philosophy. As described above, when management philosophy is transmitted overseas, it is accompanied by “cultural translation” in the interfacing of different cultures, and this also leads to the creation of a new culture. In each of the following chapters, this will be described in further detail through specific cases. Before ending this chapter, we will give brief introduction of the following chapters in this book. In Chap. 2, we introduce the case of Honda’s initial overseas expansion, which is a manufacturing industry representing Japan. In particular, we will follow the transition of how the basic business philosophy was translated into English when advancing overseas and examine how that philosophy is educated abroad. In Chap. 3, in the case of Rakuten, an e-commerce company representing Japan, we will examine the process of the interpretation and the creation of its business philosophy through “Englishnization.” In Chap. 4, we will take up the optical manufacturer Olympus that represents Japan and examine how the business philosophy has been changed along with the progress of globalization. Then, we will consider two examples of the penetration of the business philosophy to employees. In Chap. 5, we compare the cases of China and the United States from a sociological point of view regarding the penetration of the business philosophy to local employees. In Chap. 6, while introducing the case of Yakult, a leading Japanese dairy manufacturer, we will introduce an example of how its management philosophy penetrates into sales staff called Yakult lady. Finally, we will examine three cases of overseas companies. In Chap. 7, with regard to FOTILE Group in China, we will examine how they inherit Chinese traditional Confucian philosophy and interpret it into modern management philosophy. In Chaps. 8 and 9, with regard to Samsung and LG, Korea’s leading companies, we will consider how their management philosophy accepted in conjunction with ­business strategies in a competitive market environment. Through these cases, we want to clarify the dynamism of management philosophy.

12

I. Mitsui

References Aoki T (1978) Bunka no honyaku (Translation of culture) (in Japanese). University of Tokyo Press, Tokyo Leach E (1976) Culture and communication: the logic by which symbols are connected: an introduction to the use of structuralist analysis in social anthropology. Cambridge University Press, Cambridge Maegawa K (ed) (2012) Cultural interface no jinruigaku: yomikae kara kakikae no jissen he (Anthropology of cultural interface: for practice from translation to displacement) (in Japanese). Shinyō-sha, Tokyo Mitsui I (ed) (2013) Asia kigyō no keieirinen: Seisei Dempa Keisyō no Dynamism (Management philosophies of Asian companies: dynamism of their creation, propagation and succession) (in Japanese). Bunshindo, Tokyo Nakagawa K (ed) (1972) Keiei rinen (Management philosophy) (in Japanese). Diamond sha, Tokyo Sumihara N (2016) Bunka no kabe wo koeta kizuna wo musubu yosuga to shiteno keiei rinen: Matsushita Konosuke to Mohammad Gobel no rinen kyōyu no arikata (Management philosophy as a way to create link across cultural barrier: a case of sharing the philosophy with Konosuke Matsushita and Mohammad Gobel (Indonesia)) (in Japanese). In Okuno A (ed) Asia kigyō ni okeru keiei rinen no seisei-dempa-keishō ni kansuru kenkyu (A study on creation, propagation, and succession of management philosophy in Asian companies) (in Japanese), Monograph of Research Institute, Konan University, no. 127. Takada K (1978) Keiei mokutekiron (Methodology for management objectives) (in Japanese). Chikura shobō, Tokyo

Chapter 2

Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its Management Philosophy: The Power to Realize the “Dream” Masataka Kosugi, Izumi Mitsui, and Tatsuya Deguchi

Abstract  Honda Motor Co., Ltd. was founded by Soichiro Honda in Hamamatsu, Japan, in 1948 as a motorcycle production and sales company, with approximately 20 employees and a capital of JPY one million. After 3  years of establishment, Honda became Japan’s leading motorcycle production company. In 1958, it launched Super Cub, a long-lasting product. Honda grew rapidly to occupy the top spot in global motorcycle sales. In 1959, Honda established a local corporation in the United States, taking the first step toward an overseas expansion. Soon after, in 1963, production and sales of (four-wheel) automobiles began, and its business expanded worldwide in three categories: motorcycles, automobiles, and general-purpose engines. In 2019, Honda had approximately 220,000 employees and was already selling more than 30 million units worldwide in consolidated base. Honda’s management philosophy, which has inherited since its foundation, has supported its growth to be a global company. This chapter will describe the company’s management philosophy, how it has been propagated to overseas and been changing over time, and the efforts and translations involved in this propagation. The study in this chapter is based on the participant observation by one of the authors and the interviews conducted with ex-executives of Honda.

M. Kosugi International Politics and Economics, Nishogakusha University Graduate School, Tokyo, Japan I. Mitsui (*) College of Economics, Nihon University, Tokyo, Japan e-mail: [email protected] T. Deguchi Faculty of Tourism, Wakayama University, Wakayama, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_2

13

14

M. Kosugi et al.

2.1  Introduction Honda Motor Co., Ltd. (“Honda” henceforth) was founded by Soichiro Honda in Hamamatsu, Shizuoka prefecture, in September 1948 as a motorcycle production and sales company, with approximately 20 employees and a capital of JPY one million. Ever since the first motorcycle called “Dream D” rolled off the production line in 1949, the dream and spirit of the founder, Soichiro Honda, and the sense and judgment of his management partner, Takeo Fujisawa, fueled the company’s ambition to develop and sell new and high-performance products. As a result, within 3  years of establishment, Honda became Japan’s leading motorcycle production company; further, in 1958, 10 years after its establishment, it launched Super Cub, a long-lasting product. Honda grew rapidly to occupy the top spot in global motorcycle sales. In 1959, Honda established a local corporation in the United States, taking the first step toward an overseas expansion that would later gain Honda the epithet of a “global company.” Soon after, in 1963, production and sales of (four-wheel) automobiles began, and its business expanded worldwide in three categories: motorcycles, automobiles, and general-purpose engines. Today, Honda boasts a total of 116 production bases in 41 countries, along with sales and development bases that return consolidated sales of 12 trillion yen. In 2019, Honda had approximately 220,000 employees and was already selling more than 30 million units worldwide in consolidated base. Honda’s management philosophy, which has been inherited since its foundation, has supported its growth to be a global company. This chapter will describe in detail the company’s management philosophy, how it had propagated overseas and underwent change over time, and the efforts and translations involved in this propagation. The study in this chapter is based on the participant observation by one of the authors and the interviews conducted with ex-executives of Honda.

2.2  Honda’s Overseas Expansion Honda began exporting motorcycles in 1952 and became Japan’s top manufacturer of motorcycles in 1955. Honda first participated in the world’s top motorcycle race (the Tourist Trophy or TT race) on the Isle of Man, England, in 1954 and hogged the front row (from the first to the fifth position) in 1961. Soichiro Honda’s dream of “aim for the world’s top technology” was realized at this point, and Honda’s global expansion began to accelerate. As mentioned above, Honda established a local corporation in Los Angeles in 1959, and in 1963, the first overseas production of

2  Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its…

15

motorcycles began in Belgium. Exports expanded to the United States and Canada between the 1960s and 1970s. Since then, Honda’s global production of motorcycles has made remarkable progress, partly because of an increase in demand in Asia, with a cumulative global production of 200 million units in 2008. The popular product Super Cub achieved global production volumes of 60 million units in the same year. The production of four-wheeled vehicles also began in 1963. In 1967, the light-­ duty minicar N360, which became a great success, was launched. It became the top domestic minicar by production volume by 1968. In 1969, Honda began the overseas production of its first four-wheeled vehicle in Taiwan. In 1972, the company developed the low-pollution engine named Compound Vortex Controlled Combustion (CVCC), the world’s first engine to clear the Unites States’ Muskie Act, which imposed rigorous environmental standards. At this time, the “world’s best” standard was realized. Shifting focus to the Asian market, in 1975, Honda began producing automobiles in Indonesia. In 1982, the company, the first Japanese car manufacturer in the United States, began car production, and by 1989, “Accord” achieved the top passenger car sales by a model in the United States. In 2001, its cumulative production of automobiles in North America reached ten million units, and in 2003, it reached 50 million units worldwide. In more recent years, Honda has concentrated on the global development of hybrid vehicles, in consideration of global environmental problems and the need for compact vehicles destined for the Asian market. As a result, Honda strengthened its position as a global company. The foresight of Takeo Fujisawa laid the foundation for Honda’s development as a global company. According to Fujisawa’s autobiography, the first overseas transactions were concluded when 300 engines were sold through a trading company in Taiwan. “The two-wheeled vehicle market starts with Asia” and “through a trading company,” but from the beginning, Fujisawa believed that “the distribution route is oneself” and “the main battlefield is the United States” (Fujisawa 1998: 174–176). This perspective of the market meant that it could be used without facing any limitations if it were a pipe (marketing channel) made in-house. However, if the channel was made by another firm, the company would be kicked out when it was full. Fujisawa was convinced that if demand could be generated in the United States, the world’s leading consumer market, a product had promise; if not, the product had no potential. This principle brought the company admirable success, and Honda was the first Japanese automobile company to produce in the United States and became a leading source of motivation for other Japanese companies based in the country. The basis for its overseas development was Honda’s management philosophy, together with the technology and innovation capacity that the company had shown since its inception.

16

M. Kosugi et al.

2.3  The Management Philosophy of Honda 2.3.1  Creation of the Management Philosophy The management philosophy of Honda had been articulated by Soichiro Honda and Takeo Fujisawa (managing director and senior vice president, who joined the company 1 year after its foundation) since its establishment in 1948, when Honda Motor Co., Ltd. began operations with approximately 20 employees. Based on what they preached to employees daily and the company newsletter “Honda Monthly Report,” which was later distributed as a printed document, their exemplary actions constituted the bulk of the company philosophy. They were discussed in 1956, 7 years after the company’s establishment; further, “Company Principles” and a “Management Policy” were officially established and announced. These principles greatly affected internal and external stakeholders, thus becoming a foundation for the company and a compass to guide its operations. In line with the overseas expansion described above, in 1962, the “Company Principles” and “Management Policy” were translated into English. These principles have always been an indicator and action guide for domestic and foreign employees. Corrections and additions have been introduced periodically. However, even now, 63 years after the company’s establishment, these principles are considered the flesh and blood of Honda employees, the source of Honda’s DNA, and its life force. Honda’s management philosophy has been called the “Honda philosophy” since its establishment and has been popular both within and outside the company.

2.3.2  Structure of Management Philosophy The backbone of Honda’s management philosophy comprises the following three sets of principles (written and authorized in-house): “Fundamental Beliefs,” “Company Principles,” and “Management Policy.” Although these principles have not been formalized in the daily activities of Honda, they have resulted in management styles that have transmitted over time and constitute the “Honda Way.” They can be summarized as follows: 1. Our Fundamental Beliefs: (i) Respect for the individual (ii) The three joys:“The joy of buying,” “the joy of selling,” and “the joy of creating” 2 . The Honda company principle 3. Honda management policies 4. The Honda Way

2  Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its…

17

“Fundamental Beliefs” represent the Honda group’s lasting conviction and consist of the following two aspects: “respect for the individual” and the “three joys.” “Respect for the individual” is evident everywhere in Honda. Human beings are essentially free individuals who think and create to realize their dreams and hopes. Respect for the individual is a philosophy in which joy is shared by respecting individuality, standing on an equal footing in any relationship, trusting, and having the ability to share such a value with each other. Respect for the individual in Honda consists of three elements: “initiative,” “equality,” and “trust.” “Initiative” refers to the freedom to express ideas freely, take independent actions, and generate results that are not tied to established concepts. “Equality” means respecting individual differences and giving equal opportunities to motivated persons, regardless of their attributes (nationality, gender, and academic background, among others). “Trust” means recognizing each other, compensating for individual shortages, and carrying out a role in good faith, that is, based on mutual trust. The “three joys1” are a representation of Honda’s wish to build a trusting relationship that transmits joy to everyone involved in its corporate activities; they are based on respect for the individual. The founder and all the employees have used these principles and have considered them as the basis for their work. In the words of Soichiro (Honda 2001: 215–216): The first joy in creation is the joy given only to the engineer, as the Creator made all things of Heaven and Earth by His infinitely rich desire for creation, it is the irreplaceable joy of engineers to create products that contribute to a cultural society through their own ideas. Moreover, when the product is excellent and welcomed by society, the joy of the engineer is unequalled. As one of the engineers, I always strive to make such products. The second joy is that of those who sell products. Our company is a manufacturer. Products made by our company are delivered to customers by the cooperation and efforts of agents and distributors. In this case, when the quality and performance of the product is excellent and the price is low, those who are willing to sell will be pleased. High-quality and low-priced goods are always welcomed. There is merit in selling well, and you are proud to handle the item and you have joy. Those who make products that are not pleasing to the seller are failures as manufacturers. The third joy, that of the person who bought it, is what determines the value of the fairest product. They know best the value of the product; it is not the manufacturer or the dealer that gives the final judgment. The person who uses the product every day is one who buys it. The joy of saying “Oh, I'm glad I bought this item” is the crown of honor placed on the value of the product. […]. Three joys are our company motto. I do my best to make this happen. (December 1951)

“Company Principles” are at the core of the company’s management philosophy and articulate the purpose and reason of the Honda Group. “Company Principles” were reworked in 1998, but their first version, introduced in 1956, had been used for 35  years during Soichiro’s life. In 1962, “Company Princeples” were translated into English as follows: “Maintaining an international 1  At the beginning, the order of the three joys was (i) the joy of producing, (ii) the joy of selling, and (iii) the joy of buying. In 1992, on the standing point of “customer first,” the order was changed to (i) the joy of buying, (ii) the joy of selling, and (iii) the joy of producing. In addition, the word “producing” was changed to “creating” in 1998.

18

M. Kosugi et al.

viewpoint, we are dedicated to supplying products of the highest efficiency2 yet at a reasonable price for worldwide customer satisfaction.3” This translation had been mainly used by foreign employees at home and abroad. In 1991, “the highest efficiency” was changed to “excellent in quality” in English version of Company Principles. Next year, the version had been translated back into Japanese. In addition, in response to the wave of globalization, “international viewpoint” was changed to “global viewpoint,” and it assumed its present form in 1998: Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality yet at a reasonable price for worldwide customer satisfaction.4

The wording of Honda’s principles, which are the basic guideline of the company, has changed to adapt to the changing times. This allowed the principles to be accepted by employees and related persons inside and outside of Japan. In addition, the original Japanese words were also changed. Regarding the “Management Policy,” in the daily work, all people at Honda understand and share Honda’s fundamental belief and Company Principles by cherishing and practicing the ideas of “free spirit,” “challenging spirit,” and “faithfulness,” which have been considered the culture of Honda since its establishment: ∗ Proceed always with ambition and youthfulness. ∗ Respect sound theory, develop fresh ideas, and make the most effective use of time. ∗ Enjoy your work, and encourage open communications. ∗ Strive constantly for harmonious flow of work. ∗ Be ever mindful of the value of research and endeavor.5

The “Honda Way,” which has not been officially documented, is based on the Fundamental Beliefs (respect for the individual and three joys), Company Principles, and Management Policy, which is the core of Honda’s management philosophy. As such, it covers the core of the company’s style (action guidelines and concrete measures). The Honda Way comprises two parts: the first relates to action guidelines, such as: 1. Racing spirit. 2. Raise the torch with your own hands. 3. Three reality principles. 4. Do not fear failure. 5. Quality is created in the process.

2  The original Japanese word of “highest efficiency” is “seinou ga sugureteiru koto.” There are two interpretations for this Japanese word; one is “efficiency of machine” and another is “highest quality.” Judging from relevant documents, Soichiro’s initial statements were close to the former. Then, we translate it here as highest efficiency. 3  Italicized by the authors. 4  Italicized by the authors. 5  “Honda philosophy” at Honda global website: https://global.honda/about/philosophy.html

2  Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its…

19

6 . Produce where there is demand. 7. Start small; grow large. The second part relates to measures specifically related to daily work, such as: 1 . All employees wear the same white uniform. 2. Call everyone “-san,” which means “Mr. or Ms.,” instead of using working titles, such as operator, manager, or director. 3. Everyone stays in large rooms, including officers. 4. All work together, regardless of academic achievement. 5. Discuss technology regardless rank or position freely. 6. Avoid executives favoritism in hiring. These are just some aspects of the Honda Way, and many others have been implemented in factories around the world.

2.4  Diffusion of Honda’s Management Philosophy 2.4.1  P  artial Revision Due to the Overseas Transmission of the Fundamental Beliefs The abovementioned four pillars of the management philosophy were gradually introduced, but the original management philosophy was much simpler at the time of the company’s establishment, with only two elements: “Company Principles” and “Management Policy.” Acts demonstrating “respect for the individual” and the “three joys” have been rewarded by the founder since the establishment of the company and are valued among employees, but they did not express the same founding values of the Company Principles and Management Policy. However, when the fourth president took office in 1990, 35  years had passed since the incorporation of “Company Principles” and “Management Policy” in the management philosophy. With the growing size of the company and the changing business environment, he suggested to discuss whether it is necessary to check and review. In 1991, full-fledged discussion, debate, and review began on a global scale, involving overseas employees. As a result, the “respect for the individual” and the “three joys” were “Fundamental Beliefs” (foundations), which lie at the basis of all the new systems. Figure  2.1 shows the overall configuration of Honda’s management philosophy.

20

M. Kosugi et al.

Fig. 2.1  Composition of Honda’s management philosophy

2.4.2  M  odification of Japanese Corporate Principles Owing to the Overseas Move Expatriates and local employees with foreign experience, as well as overseas local executives and personnel, began stating that there appears to be a conflict between the Honda philosophy (management philosophy) taught by the Japanese and the philosophy that we read in English; there was no clear match. Therefore, “Corporate Principles,” which were translated into English in 1962, were translated back to Japanese. The English versions of “Corporate Principles” and “Management Policy” remained unchanged; however, it was decided to change the version that had been translated back into Japanese. We already mentioned about the translational process of “Corporate Principles” in Sect. 2.3.2. Next, we will concern about the third element of Management Policy as follows. In the latter part of “Love work and brighten your working atmosphere,” the expression shokuba wo akaruku suru (brighten your working atmosphere) elicited the opinion that “the Japanese can understand, but it is abstract and difficult to understand depending on the country and ethnicity.” Specifically, the second half of this part should be revised to communication wo taisetsu ni surukoto (encourage open communications). As described above, the company’s management philosophy was translated into the language of the region (overseas) where it was propagated; further, it was decided to rewrite it to make it more specific. The wording was changed to perpetuate the company’s message.

2.5  The Propagation of the Management Philosophy The same spirit animated Takeo Fujisawa and Soichiro Honda, the founders of Honda, and formed the basis of their management philosophy. On the 25th anniversary of the company’s founding, Fujisawa and Honda resigned from the position of president and vice president, respectively. The position of president was handed

2  Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its…

21

over to Kiyoshi Kawashima, who was nearly 20  years younger (at age 45) than them; this brought him into the public limelight. Fujisawa passed away at the end of 1988, and about 3 years later, Honda passed away in the summer of 1991. Rare geniuses themselves, the presidents who succeeded Honda and Fujisawa adopted a method of running the company on a system that focused on turning young executives into “geniuses,” and the “Management Philosophy,” which was Honda’s DNA, lent great support to this system. In other words, the “Honda philosophy” was the company’s primary reference point. Above all, those who learned directly from Honda and Fujisawa always consider “if Mr. Honda were alive” and “if Mr. Fujisawa were here.” The words and actions that constituted Honda’s management guided their actions and assisted them in working on human resources (HR) development. Not only have the HR department, which manages people, organizations, and business philosophy education, but also executives and managers made joint efforts to spread the company’s management philosophy. Honda’s management philosophy was at the core of a keen effort carried out by the company to propagate and pass on its philosophy, developing it at the workplace through various measures, as described in the following subsections.

2.5.1  Honda Version of the Bible: Top Talks Honda has a culture that is slightly different from that of traditional Japanese companies. For example, the traditional companies celebrate their 10th, 20th, and 30th anniversaries of business, but Honda held large commemorative events on its 15th, 25th, and 35th anniversaries. At these events, the traditional companies often distribute souvenirs, such as ballpoint pens and watches carrying the company name, as decided by their managers. However, in the case of Honda, the decision on “how to celebrate” has always been left to the employees, who propose their ideas. For example, to celebrate the 25th anniversary of the company, an employee project team created a Honda bible, which combines the main statements of successive managers such as Honda, Fujisawa, and Kawashima in a single volume containing more than 300 pages. The book was given the title Top Talks—Wisdom of Foresight and distributed to all 45,000 Honda employees. This volume is a handy book of reference for employees at work and at home and has been extensively used as a textbook for teaching the Honda philosophy; thus, it has become essential educational material not only for new employees but also for managerial supervisors (Fig. 2.2).

22

M. Kosugi et al.

Fig. 2.2  The book Top Talks (Japanese Edition)

2.5.2  T  he Propagation of Honda’s Philosophy Through Education and Training Education and training play a key role in transferring the management philosophy. Honda’s corporate philosophy training includes:1. Pre-employment education/ employment training.2. Experience discussion training for mid-level employees.3. Learn through the life of the founder (“the origin” library course and “the origin” comic, among others). The propagation of the management philosophy is achieved through these and other educational training materials. Sixty-three years have already passed since the establishment of Honda, which has been regarded as “a postwar young company” or “the last automobile company.” The presidents up to the sixth generation have received the founder’s influence by Honda and Fujisawa, regardless of their standing in the company. General employees and several management supervisors had also been directly trained by

2  Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its…

23

the founders and had been made extensive use of this knowledge. However, the current president, who belongs to the seventh generation, joined the company after Honda and Fujisawa retired. Concerning the personnel, general affairs department, and the executives, “there will be no employees who receive the founder’s award due to time problems,” and “it is predicted that business and personnel will expand 1.5 times by 2020 with further expansion mainly in emerging countries.” The interviews carried out in this study indicate that Honda is currently considering the following interventions: First, a training to embed further the Honda philosophy through on-the-job trainings (OJTs) and off-the-job trainings (OFFJTs). Second, the information transmission of Honda Now (e.g., at each site). Third, the propagation of the Honda philosophy. The company is trying to convey the Honda philosophy in the most personal way to each employee by providing various courses and using different media.

2.5.3  The Practice of the Management Philosophy How is Honda’s management philosophy practiced in the field? One of the Honda ways is the “three reality principles,” that is, “we go to the actual place where things happen; we learn about the actual situation; and we are realistic.6” This spirit is passed on to every department—research and development, production, sales, and personnel—and there is hardly anything in the company’s philosophy that is ignored. Further, the practice of the philosophy is reflected in the personnel evaluation items. In other words, personnel evaluation (personnel appraisal and work evaluation) represents an important factor in employees’ wage management (reward, promotion, and bonus) and treatment management (appointment, promotion, and accreditation). In addition, items such as “the person’s effort and attitude, achievement (results), and increased ability” and “Honda philosophy’s level of practice” are considered essential elements (competency) in any evaluation. Although the evaluation items vary depending on the country, business document, industry, and job type, typical competency items are as follows: 1. Respect for the individual 2. Fairness and equality 3. Mutual trust 4. Vision 5. Challenge 6. Youth 7. Three reality principles

 See the following URL: http://www.hondaresearch.com/pdf/Honda-SR-2015-en-all.pdf

6

24

M. Kosugi et al.

Fig. 2.3  “Employee award” scene (1970); the left person was Mr. Kawashima, the president

8. Customer-first principle 9. Speed 10. Honesty. In this way, the philosophy is incorporated into more specific personnel policies and correctly implemented (Fig. 2.3).

2.5.4  P  ropagation to Overseas Employees and Overseas Offices Concerning the transfer of the management philosophy and education to overseas employees, Honda is currently training instructors at the six regional headquarters worldwide (six poles: Japan, North America, South America, Europe, China, and Asia-Oceania) on the Honda philosophy propagation and promoting education and training7 (for instance, instructors from the Japanese headquarters visit Africa). Each overseas office (plant, sales base, and regional head office, among others) is developed according to its specific situation because the context varies according to

 For Africa, where there is no regional headquarter, instructors are sent from the Japanese headquarters. 7

2  Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its…

25

the country, type of industry, and employee’s growth condition. We will show the case of education and training at the Honda of America Mfg. (hereafter HAM) below. HAM, which is the first production base in America for Japanese auto companies, has paid attention to penetrating and practicing of its management philosophy to employees since first manufacturing of motorcycle at 1984. It is not imposing Japanese ways of thinking and doing on overseas employees but communicating and discussing each other by convincing and satisfactory ways. For example, Honda’s symbolic dress code of “white uniform” (in the factory) has been introduced by sufficient explanation and conversation with employees. A Japanese manager explained “our work face to the risk of one’s life like a work of doctors and nurses. Their uniforms are commonly white to show dirt. High quality products cannot be produced in the dirty and messy space. So, white uniform is symbolic expression of our will to produce high quality products and to be committed to customer satisfaction. White uniform is the symbol of our intent on the creation of high quality products and the commitment to customer satisfaction. It is also the symbol of our pride of corporate mission.” By hearing this explanation, overseas employees fully understood the meaning of “white uniform” in Honda, and they accepted the manager’s proposal of this dress code. Such cases are found in all over the workplace in Honda. For one example, they don’t use such a discriminatory expression as “employer vs. employee,” but they call each other “associate” from workers to the top management. In addition, there are no private rooms for top management such as president’s office or executive rooms, because the shared room called “Ōbeya” in Japanese grows to know each other so well and stimulates their communication. And there are no exclusive parking spaces for execs; everyone is available to park at convenient parking spaces with first-come-first-served basis. As mentioned above, there are a lot of ways of practice for realizing Honda’s management philosophy. HAM, which is founded with 64 starting members, has rapidly expanded on the number of factories and its productivity and employment. At the time, its leading product “Accord” became the best seller car beating US big three cars. Considering such a context, the second president of HAM became acutely aware of writing textbooks and using them through education to penetrate Honda’s management philosophy to every member of the company. In October 1985, he published English-Japanese textbook The Honda Way (see Fig. 2.4). The contents of the textbook consist of the following six sections: Company Principle, Management Policies, Honda Philosophy, About Organization, In the Factory, Business Meeting, and Information Exchange. This book has been used by many Honda’s associates in both of America and Japan. Seven years after publishing the book, the Honda philosophy was changed by initiative of the Japan headquarter. Then, whole-company-scale education and training in HAM had been conducted from 1992 to 1993. Its methods of instruction are not only a classroom lecture but also a workshop with discussion in a meeting room on the Honda philosophy and the Honda Way. Groups for discussion consisted of about ten people with diversified attributes: Japanese, Americans, top managers, middle managers, males, and females. Many American top managers told the Honda

26

M. Kosugi et al.

Fig. 2.4  The Honda Way study guide (HAM, 1985)

Way that they were instructed intensively at the early HAM—motor cycle factory— days to young employees. Japanese top manages told their experiences in Japan including their own tough with Soichiro Honda and Takeo Fujisawa, and American associates shared their experiences. Young American associates, who had just joined, asked freely many questions to senior American associates and Japanese associates. As a result, they were very rich and fruitful workshops. These workshops were held quite many times and all of these were audio-recorded. The important and useful parts of the recorded audio materials were edited, and finally they were recompiled as the voice teaching material of the Honda Way (HAM version), which consisted of six audio cassettes, totally 6 h (see Fig. 2.5). One author (Kosugi), who had been in HAM from 1992 to 1995, involved in promoting education and training of the management philosophy. The author also joined the discussion on the Company Principles with American associates including the general manager of the HAM factory. The word “international viewpoint” in the Company Principles, which we mentioned in Sect. 2.3.2, was discussed in those days. Parts of those discussions are left in the voice teaching materials. Activities for penetration and practice of management philosophy of Honda Motor Co., Ltd. also conducted outside of Japan and the United States. We mention

2  Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its…

27

Fig. 2.5  The voice teaching material of the Honda Way (HAM version)

a case of Asian Honda Motor Co., Ltd. (hereafter ASH).8 ASH, which was the regional headquarter covering businesses in ASEAN countries, played an initiative role to instruct Honda’s management philosophy to its associates (employees). ASH collected many international associates who can work actively in the field from Honda’s business hubs for production, sales, services, R&D, and so on. Most of such associates are cosmopolitan having fluent English ability. They also have much pride because most of them have their education in foreign countries and/or are MBA holders. The top management of AHM thought that the more influential to others and other countries they are, the more intensive instruction of management philosophy of Honda Motor is necessary and important. Then, Japanese associates, who were under the tutelage of Soichiro Honda and/or Takeo Fujisawa, with fluent English and/or Thai abilities and Thai top managers with fluent English and/or Japanese abilities play a central role in making educational materials such as Thai version of Top Talks and conducting education of “Honda philosophy.” They had spent much time for the education by changing instructors appropriately. One of the authors (Kosugi) experienced such educations in practice when he worked at ASH from 1995 to 1998. 8  AHM was established in Thailand in 1964 to distribute motorcycles. In 1996, AHM became Honda’s ASEAN regional headquarter. In 2004, AHM extended its covering region to Asia (excluded China) and Oceania.

28

M. Kosugi et al.

2.6  Conclusions As described above, while respecting the founder’s philosophy, Honda has modified the wording of its principles in a way that matches the present circumstances. The management philosophy being put into practice and incorporated into daily action guidelines and concrete personnel measures needs to be clear. Interpretation and reinterpretation of the philosophy by people in the field are essential for its realization. Through on-site interpretation and practice, the philosophy will become stronger and accelerate the development of the whole company and the realization of people’s dreams, thus reflecting the dynamism of ideas. Mr. Hisao Suzuki and Mr. Takuo Kawasaki practiced the Honda philosophy at the global sites, and Hisao Suzuki, who is at the forefront of development, spoke about the experience of working at the Research and Development Center with Soichiro Honda as follows9: Soichiro’s way of working at the Research & Development Center was always on site, and I had never seen him sitting at the president’s desk (the president’s office is always open, too. Anyone could drop in. There is no secretary). At the research & development center, he went to the drawing site, the machine room for making parts, the sheet metal site, the site for assembling engines and prototypes, the test room, the design room, and the model room all the time. So, while looking at things, he decided to do things with people on site, “Let’s go, let’s do it this way.” At Honda, this is called “Three Reality Principle,” and it has become the most important code of conduct. Seeing the actual thing on site, know the reality, immediately make a decision on site, and decide what to do next. Because the president decides with the person on site, the organization hierarchy has been flattened. Middle positions have become unnecessary because the work is outsourced. The fewer the organizational levels, the more transparent and open the communication. Originally decided on site, some things are impossible to decide. This is homework; the time limit is always the next morning. The next morning, would bring the question of “what’s up with the president?” Therefore, there had to be an answer. Soichiro’s real power is that even if he had a lot of homework every day, he still came up with the answers the next morning. A person with homework would come with just one answer, but Soichiro could not help giving dozens of answers. Soichiro, who did this every day, was really a superman! Soichiro turned in his driving license at the age of 80, but he actually drove a product developed just before his death on the R & D center and evaluated it. When he found something he did not like, he said, “Now, improve here and get better” and he did not leave. For Honda, speed is important on both straight stretches and corners. I believe that the creation of this speed was the source of development. Given such a background, I think that Honda considered it a race.

Additionally, Takuo Kawasaki, who led production at several plants, stated:

9  This description is based on the following symposium and interview conducted by Kosugi, Mitsui, Deguchi, and others: International Symposium on the Emergence, Transmission, and Diffusion of the Management Philosophy in Asian Companies (jointly hosted by the Center for China and Asian Studies, College of Economics, Nihon University and School of Modern Languages and Cultures, the University of Hong Kong) on November 5–6, 2011 in the University of Hong Kong.

2  Honda Motor Co., Ltd.’s Overseas Expansion and the Transmission of Its…

29

Three Rs are important with respect to the individual. That is: Respect Reliability Responsibility for each other. Human beings are things that grow, and have ambitions and wisdom. Improvement is born from there. Human lives are valuable only when doing value-added work. To do so, the opportunities must be equal and the assessments must be fair and clear. This is because it leads to the desire for further improvement. In the Three Reality Principle (site principle), first, the worksite is the open space for all workers. Second, the product is built on site. It can only be built on site. Third, because the site is alive, we must understand that it changes every day. Further, in the factory, we make things (products/equipment) and people highly visible. For this purpose, safety is especially important with 5S (Seiri, Seiton, Seiketsu, Seisou, Shitsuke), that is, “sorting, tidying, cleaning, hygiene, ad discipline.” In other words, we have to make it safe and efficient, but to do so, we have to make the problems manifest and resolved quickly, making them visible to everyone. For the actualization of the problem, the Three Reality Principle must be thoroughly followed, and “Why, why, why...” must be repeated. As such, Honda has created a “five principles sheet” that is effective in solving problems. At production sites, work standards are created based on process quality control slips, but this time, the administrator tries to use it. If you cannot follow work standards, it means failure. Further, repeat training based on this work standard. After that, it is necessary to verify repeatedly whether good products can be produced efficiently and smoothly based on the work standard. Are other decisions properly followed? It is necessary to follow-up and check. In addition, is it necessary for the boss to see the work on site continuously himself, and to verify and follow whether it is unreasonable or difficult? In other words, it is important to develop quality across the company. We believe that quality is our greatest sales force. Since we are professionals in manufacturing, we need to ensure quality assurance. It is important for you to be conscious of the customer and think from the customer’s point of view, which is different from yours. Even if it is one part per million (1PPM) for the producer, it is 100% for the customer, that is, it is an irreplaceable single piece.

In these words, the interpretation of the Honda philosophy is remarkably clear and emphasizes the commitment to the work, attachment to the company, and love and respect for the company’s founder. This is the realization of the management philosophy by each employee. In addition, it seems connected to the realization of an individual’s dream and has become a force that supports action. In this way, the management philosophy will be reinforced by being transmitted and emulated. Acknowledgements  This article is a revised and updated version of Kosugi et  al. (2013). We would like to thank Toshikata Amino (ex-executive vice president of Honda of America Mfg.), Hisao Suzuki (ex-chief advisor of Honda R&D Americas), and Takuo Kawasaki (ex-general manager of Honda’s Suzuka Factory) for their valuable comments and suggestions at the International Symposium on the Emergence, Transmission, and Diffusion of the Management Philosophy in Asian Companies (at Hong Kong, 2011) and others.

30

M. Kosugi et al.

References Fujisawa T (1998) Keiei ni owari wa nai (No end for management) (in Japanese). Bungei shunju, Tokyo Honda S (2001) Honda Soichiro Yume wo chikara ni (The power realize the dream) (in Japanese). Nihon keizai shimbun shuppansha, Tokyo Kosugi M, Mitsui I, Deguchi T (2013) Honda giken kōgyō no kaigai shinshutsu to keieirinen no denpa keishō: ‘Yume’ wo jitsugen suru rinen no chikara (Honda Motor Co., Ltd.’s overseas expansion and the transmission of its management philosophy: the power of the philosophy to realize the “dream”) (in Japanese). In Mitsui I (ed) Asia kigyō no keieirinen: Seisei Dempa Keishō no Dynamism (Management philosophies of Asian companies: dynamism of their creation, transmission and succession). Bunshindō, Tokyo

Chapter 3

The Creation of a Corporate Philosophy in a Japanese E-Commerce Company: A Case Study of Rakuten Yasuhiro Watanabe and Kazuhito Isomura

Abstract  The purpose of this chapter is to clarify how a corporate philosophy is created and how it works in the corporate culture at a company succeeded in globalization. Our research subject is Rakuten, a Japanese e-commerce company. Rakuten is a leading company of Internet services in Japan, and since it adopted English as its official language, it attracted the attention of those interested in corporate globalization. To describe the process whereby Rakuten created its corporate philosophy, we referred to the books written by Rakuten CEO Hiroshi Mikitani and documents related to Rakuten’s corporate philosophy. We also interviewed several employees who have been working on Rakuten’s system development for more than 10 years and asked them what globalization and Englishnization brought about. The survey revealed that Rakuten’s corporate philosophy is a system of values, the mission, and practices, which is called “Rakuten Shugi” (Rakuten basic principles). Rakuten has developed its own values created through practices, and it has updated its mission over time, and thus Rakuten Shugi operates as a guide to adapt to the rapidly changing Internet environment.

3.1  Introduction One of the purposes of this chapter is to reveal how an e-commerce company has created a corporate philosophy1 while developing its business. Rakuten, which is the subject of our study, is one of the leading companies in Internet services in Japan. 1  In this case, the company has officially established its corporate philosophy. In this chapter, we consider the concept of a corporate philosophy as equivalent with the concept of a management philosophy in this book.

Y. Watanabe (*) Tokyo Fuji University, Tokyo, Japan e-mail: [email protected] K. Isomura Chuo University, Tokyo, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_3

31

32

Y. Watanabe and K. Isomura

Founded in 1997 by CEO Hiroshi Mikitani, Rakuten created the Internet shopping market in Japan and achieved rapid growth. Rakuten is also known as a company with unique customs, such as an all-hands meeting every Monday at 8 am, which is named “Asakai.” In this chapter, we describe what kind of corporate philosophy has been cultivated and what kind of code of conduct created in this rapidly growing e-commerce company. In 2010, Rakuten announced that the company’s official language would be English (Englishnization)2 in an attempt to accelerate growth in foreign markets. This significant challenge attracted the attention of those interested in corporate globalization. Therefore, another purpose of this chapter is to reveal how a corporate philosophy is accepted and works in the workplace that has undergone a major change, namely, globalization. In particular, we describe the organization of Rakuten’s system development department, on which the influence of globalization has been particularly significant. We focus on how the behavior and norms of employees involved in Rakuten’s market system development have changed. The rest of the chapter is organized as follows. First, we describe the actions and norms that were established when Rakuten was founded. Next, we illustrate how Rakuten, with its new goals of globalization and Englishnization, developed its corporate philosophy after the first 10 years. Then, using an interview, we clarify how the system development staff who have gone through globalization have practiced Rakuten’s corporate philosophy. Finally, we reveal the core values created through the interaction between corporate philosophy and practice.

3.2  Research Method To clarify the background to the creation of Rakuten’s corporate philosophy, we referred to the books written by Rakuten CEO Hiroshi Mikitani,3 documents on corporate philosophy, and annual reports.4 In addition, one of the authors of this chapter worked as an engineer in Rakuten’s system development department from April 2007 to March 2010 and thus had participant observation for the corporate culture at that time. Hence, this chapter examines Rakuten’s corporate philosophy using the personal experience of a former employee as one source of information. To understand the qualitative changes in Rakuten after globalization, we interviewed several people who had experienced the changes in the workplace.5

2  “Englishnization” is a coined word by Mikitani that refers to changing the company’s official language to English. 3  Mikitani (2007, 2013a, b, 2018). 4  Rakuten, Inc. “2005−2017 Annual Reports” Web page. 5  We interviewed seven people individually. One interview lasted for 4 hours, five lasted for 3 h, and one lasted for 2 h.

3  The Creation of a Corporate Philosophy in a Japanese E-Commerce Company…

33

Interviews were conducted mainly with staff with experience in the development of Rakuten’s core system, Rakuten Merchant Server (RMS), as a part of Rakuten’s system development. Some of these people had already left Rakuten, and we also interviewed some former employees who knew how Rakuten had been founded. Although the number of interviewees was limited, all of them had worked for Rakuten for more than 10  years, with some having worked there for more than 15 years. During the interviews, we asked the interviewees what kind of work they were involved in, what they had experienced and learned, and what kind of work they would like to do in the future. The interviewees’ responses included information on how they had responded personally and how their colleagues had responded to the major ongoing changes presented by both globalization and Englishnization. There are precedents for a case study on Rakuten, for example, the case study undertaken by Tsedal Neeley of the Harvard Business School is well-known.6 Our study focuses on clarifying how Rakuten’s corporate philosophy has changed in response to the major environmental changes presented by globalization and Englishnization. Therefore, this chapter describes the changes in individual behavior and practices that were caused by these major environmental changes.

3.3  Corporate History 3.3.1  The Rakuten Company Rakuten was founded in 1997 by CEO Hiroshi Mikitani. Rakuten’s core business, Rakuten Ichiba, is shopping mall-style e-commerce (EC), and its business model is B2B2C (business-to-business-to-customer). Rakuten does not sell directly to customers but offers a system whereby merchants do business with each other. It has been compared with Amazon, which has also developed a major global EC presence, but Amazon’s business model is B2C (business-to-consumer). Rakuten Ichiba has a variety of merchants, large and small, with stores in the mall. In 2019, there were about 46,000 Rakuten Ichiba merchants, making it one of the largest online shopping malls in the world. Since its inception, Rakuten has steadily expanded its Internet shopping mall business and made a public offering in 2000. In addition, in 2002 the financial system was greatly improved by revising the fee system and changing from uniform store opening costs to a pay-as-you-go system. With the financial strength to build a strong infrastructure platform to handle ever-increasing turnover, an expansion strategy became possible. This business decision was closely connected to the growth of both the merchants and Rakuten. In 2003, Rakuten Travel and Rakuten

6  Tsedal Neeley researched Rakuten’s Englishnization in a study of the impact of common languages in global organizations (Neeley 2017). In addition, some cases or case articles were published as follows: McFarlan et al. (2004), Neeley (2011), and Willenborg (2016).

34

Y. Watanabe and K. Isomura

Securities, Inc. expanded their businesses by acquiring their predecessor companies. With the establishment of a new professional baseball team in 2004, Rakuten quickly became famous in Japan. Rakuten also acquired a credit card company in 2005, enhancing traders’ convenience by providing credit cards that could be used for Internet shopping. Because these credit cards could also be used for shopping in offline stores, the ratio of sales in the credit card business to total sales increased. The company also acquired LinkShare, its first overseas subsidiary, and entered the US affiliate market. With its business scope gradually expanding from the Internet to the offline market in general, in 2006 the company announced the “Rakuten ecosystem” concept. Ten years after its establishment, Rakuten began to expand its businesses into overseas markets. Rakuten Ichiba opened in Taiwan in 2008, in 2009 it entered Thailand, and in 2010 it entered the United States and China. In 2010, the transition to Englishnization was announced. Rakuten Ichiba entered Indonesia, Brazil, Germany, and the United Kingdom in 2011 and acquired Canadian e-book operator Kobo in 2012, after which it developed Internet services in numerous countries including Spain, France, and Malaysia. In 2012, Rakuten completed the transition to English as its official language. Currently, Rakuten provides more than 70 services in a wide variety of fields. These include EC; travel; digital content; Internet services such as communications; banking services such as credit cards, securities, insurance, and e-money; and professional sports. Rakuten is linking these services through membership and has a strategy of enhancing cross-use by users of the group’s services. This business strategy is called the Rakuten ecosystem, which includes all of the group’s economic activities, both online and offline. Consolidated sales in fiscal year 2018 totaled 1.1 trillion yen (US$10 billion), domestic EC gross merchandise sales totaled 3.4 trillion yen (US$30.9 billion), global gross transaction values totaled 15.4 trillion yen (US$140 billion), and the total number of employees was 17,214.

3.3.2  The Founding of Rakuten Rakuten was established in 1997, just before the so-called global Internet bubble. Two years earlier, Microsoft’s Windows 95 had been released, and the number of Internet users in Japan had gradually increased with the spread of PCs to general households. This period could be considered the beginning of the Internet age. In 1997, there were about 11.55 million Internet users in Japan, and some of the b­ iggest companies that saw signs of the information revolution in the United States at that time launched shopping mall businesses on the Internet.7 However, those companies failed, and Internet shopping was not popular in Japan at that time. Mikitani reflects on Rakuten’s entry into the Internet shopping business:

 Sōmu shō (Ministry of International Affairs and Communications) (2010: 41).

7

3  The Creation of a Corporate Philosophy in a Japanese E-Commerce Company…

35

At that time, large companies such as NTT, NEC, Fujitsu, and Mitsui & Co. had already entered into the Internet shopping mall business. However, no company was successful. It looked like a department store just before bankruptcy, with only vacant stores, and no decent business. The people in the IT industry underestimated Internet shopping as a business model that Japanese people were unfamiliar with.8

Rakuten Ichiba’s service was launched on 1 May 1997, with 13 stores. Its fixed fee was only 50,000 yen (US$450) per month, while the fee at a mall developed by another company was one million yen (US$9000) per month. It was a late market entry with an overwhelming cost advantage. At that time, there were only six people in the company, including Mikitani, who were looking for prospective merchants of Rakuten Ichiba in Japan. Mikitani and the others conveyed the value of Rakuten Ichiba by way of face-to-face sales. However, it was very difficult to sign a store contract with a local shopkeeper who had no idea about ​​the Internet, or even how to use a PC, even though the shopkeepers could see Mikitani’s enthusiasm for the business. At the time, it was difficult for common people to imagine the Internet shopping itself.9 The difficulties at the time of founding were not limited to gathering stores. The Rakuten Ichiba Web system also had to be constructed from scratch. Mikitani commenced production of Rakuten Ichiba in the autumn of 1996 with Shinnosuke Honjo, one of the founding members who was still a graduate student at the time. He was not a specialist for the Internet, and he did not have enough experience on programming. Later, Hiroaki Yasutake, who was in charge of system development, said that “Rakuten’s system was initially created by an amateur and developed by the customers (merchants and users). It evolved.” Yasutake looked back on the early days of system development: Rakuten’s system in 1997 when Rakuten Ichiba started with 13 merchants was just one small server on a large desk. The system that we released was tailored to the needs of merchants and users. Every day we made improvements and evolved.10

In the preface of 10 Years’ History, a book summarizing the first 10 years after the founding of Rakuten, Mikitani says that the basic philosophy, which could be called the DNA at the time of the founding of Rakuten, was condensed in a small company started with only six people: Rakuten started from scratch, and after ten years, it has grown into a group that turns over one trillion yen annually, probably the fastest growth ever by a Japanese company. The small company that we started has now grown into a group with more than 30 business units and more than 4,500 employees. Despite the increase in the number of people, the corporate culture that was cultivated by a small company is still alive. We have an all-hands meeting every Monday, and we clean the office ourselves. That small company embodied the Rakuten philosophy of empowering people through the Internet. This society truly provides equal opportunity. This is our ultimate goal, which embodies our desire to create a society

 Mikitani (2007: 7).  Mikitani (2007: 5−6). 10  Rakuten, Inc. (2007: 52−53). 8 9

36

Y. Watanabe and K. Isomura where people can live happily. Rakuten’s kernel (core value) 11of innovation was born in that small company, and Rakuten was able to grow so much because its core was firm. However, I do not think that Rakuten is complete. Rather, I think that the last ten years have merely been a period of preparation.12

3.3.3  Creation of a Corporate Philosophy Rakuten’s business mind and practices have been expressed in various words and phrases, such as the “Five Principles for Success,”13 which has been regarded as a code of conduct for employees since 1999, and “Brand Concepts,”14 which were defined in 2006. A systematic overview is provided by “Rakuten Shugi” (Rakuten basic principles), established in 2008. At the beginning of 2008, a booklet was issued to employees titled Rakuten 2008 Way. In the booklet, Mikitani outlined the values, mission, and practices that formed the prototype of Rakuten’s corporate philosophy. Mikitani noted that Rakuten’s goal was “Empowering people and society (through the Internet) and innovating and enriching society through our own success.” In May that year, “Rakuten Shugi,” which still represents Rakuten’s basic principles, was enacted. Rakuten Shugi consisted of five components: the Rakuten Group Code of Ethics, Eight Shared Worldwide Practices, Brand Concepts, Five Principles for Success, and The Way to Work, which includes the Rakuten codes of conduct and Brand Concepts. In enacting Rakuten Shugi, Mikitani stated: We have established “Rakuten Shugi” as a systematized and written record of our past efforts. This forms the basis of the Rakuten Group, and is positioned as a guideline for the work of all employees at home and abroad, regardless of their department. Rakuten Shugi is a common language for all Rakuten Group employees and forms the basis for a common thinking system. Through the practice of Rakuten Shugi, we sincerely hope that all employees will keep improving and helping to achieve the Rakuten Group’s goal of realizing our brand concept.15

From 2011, when overseas expansion commenced, the word “empowerment”16 was featured in the group’s annual reports as the new mission of Rakuten Ichiba. Mikitani stated that successful globalization would depend on how quickly Rakuten Shugi penetrated the various group companies. Meanwhile, Rakuten’s mission was now clearly the “Empowerment of individuals and society through the Internet.”

 The kernel is that part of the operating system that supports the most basic functions.  Rakuten, Inc. (2007: 9). 13  “Five Principles for Success” was developed by Mikitani in 1999 and codified values that Mikitani aimed to realize through the businesses and other activities of the Rakuten group. 14  “Brand Concepts” represent the values ​​that Rakuten aims to realize through its businesses and other activities. 15  Rakuten, Inc. (2008: 1) 16  As we argue later, empowerment is to support “enhancing myself” or “self-managing.” 11 12

3  The Creation of a Corporate Philosophy in a Japanese E-Commerce Company…

37

Fig. 3.1  The three elements of the Rakuten group (the three elements of Rakuten Shugi)

Rakuten’s corporate philosophy was revised in 2016, prior to the 20th anniversary of the group. Since its establishment, Rakuten’s goal had been to be the world’s number one Internet service company. But now, to be a “global innovation company” is a new goal. The group’s mission was now to “Contribute to society by creating value through innovation and entrepreneurship.” Thus, “innovation” was added to both the corporate goal and the mission. In the Rakuten 20th Anniversary Book distributed to employees in 2017, various activities such as the history of Rakuten, the corporate culture, Englishnization, and Rakuten Shugi are summarized. Regarding Rakuten Shugi, there had been little change over the years. The relationship between values, the mission, and practices and what each element represented were clearly stated, and the roles of the code of conduct and concept were clearly specified (see Fig. 3.1).17 In the preface of the book, Mikitani noted: Rakuten aims to become a truly global company. That means it will be a company that can contribute to the well-being of humanity on a global scale. We must be able to contribute to the well-being of the whole of humanity in the near future, otherwise we will cease to exist. The competitiveness of the company will ultimately depend on how much it can contribute to the well-being of people. We believe that innovation drives the world and will create a better tomorrow. I want to make everyone’s dream a reality. I want to bring joy and pleasure to the world. These feelings have guided me for the past 20 years. From now on, to make even one dream come true, it is important to combine our ideas and keep innovating rather than being stifled by “common sense.” Let’s share our thoughts, come together, and pioneer the future.18

Today, Rakuten’s corporate philosophy appears on the company’s Website: The Rakuten group’s mission is to contribute to society by creating value through innovation and entrepreneurship. By providing high-quality services that help our users and partners grow, we aim to advance and enrich society. To fulfill our role as a global innovation company, we are committed to maximizing both corporate and shareholder value.19

 Rakuten, Inc. (2017: 92−93).  Rakuten, Inc. (2017: 6−7). 19  Rakuten, Inc. “Our Philosophy” Web page. 17 18

38

Y. Watanabe and K. Isomura

As mentioned above, Rakuten has created values based on its own practices and has updated its mission over time. These changes were prompted by reviewing the activities of the company after the first 10 years and thinking about the next 10 years and then repeating this exercise 20 years after the company was established. It is clear that most of the Rakuten group’s corporate philosophy and codes of conduct have been devised by Mikitani.

3.4  C  ultural Changes through Globalization and Englishnization Next, we will examine how the corporate philosophy is practiced in the workplace using interviews with employees. To understand the changes before and after globalization, we will focus on the system development department, which includes a high percentage of foreigners. After adoption of Englishnization, communication in English became natural to employees. All of the people we interviewed looked bored when they were asked questions about Englishnization. The documents that they produced were all in English; all the meetings were conducted in English, except for meetings with only Japanese employees.20 These changes in communication protocol brought about numerous changes in the workplace. Employees from foreign countries brought various cultures to Rakuten, and intercultural conflicts arose. Therefore, Rakuten had to develop a new way of working. In the following section, we describe the changes in the workplace that were revealed by the interview.

3.4.1  Changes as a Result of Globalization (Englishnization) The program prepared by the company to promote Englishnization required all employees to participate. One engineer said, “I felt that the Englishnization announcement was a message that the company did not need employees who did not accept Englishnization. I had to learn English to stay in the company.” A lot of engineers with superior technical skills who did not accept the introduction of Englishnization left the company. Thus, Englishnization changed Rakuten’s culture of workplace significantly. One  The system development department employs numerous foreigners in an effort to attract talented engineers. However, even within the system development department, the proportion of foreigners differs from group to group. Some groups include more than 80% of foreigners, while others include only about 20% of foreigners. The proportion of foreigners is higher the closer the group is to providing services in foreign markets, and the proportion of foreigners who are fluent in Japanese tends to be higher the closer to services are to the Japanese market. Another influencing factor is whether managers are positive about hiring foreign employees.

20

3  The Creation of a Corporate Philosophy in a Japanese E-Commerce Company…

39

system development producer said that after Englishnization was introduced, “everything changed in the workplace.” There were two major changes in the workplace as a result of globalization that were revealed in the interview survey. One is a change in the sense of time, and the other is a change in the range of work. Most of the interviewees said that “Now we have less overtime, and we can go home on time.” Before globalization, Rakuten was a start-up company, with no distinction between work and private time. One person who was familiar with Rakuten’s founding said that “Because many people worked overtime until after the last train, they lived near the company so they could return home on foot.” The reason for the overtime was the increasing workload as a result of the expanding EC market. Because many merchants also operated offline shops, they processed orders through their online shops at night. Therefore, Rakuten employees were often dealing with merchants until midnight. The author who worked in the system development department has an impression that before globalization, such a start-up-like corporate culture remained. He undertook many development projects in conjunction with a small number of other employees while operating the system used by an ever-increasing number of merchants. Thus, the employees were very busy, worked until late every night, and sometimes worked on holidays. Spending long hours at work was not thought as a virtue, but he had a lot of work to do every day and was desperate to get it done. However, the situation changed significantly as a result of globalization. The number of employees with diverse cultural backgrounds increased, and new ways of working were created that reduced working time and clearly separated work and private time. Meanwhile, labor productivity had to be improved. One Japanese engineer said, “Japanese engineers were surprised that some of the foreign engineers delayed the work without any concerns. They didn’t mind extending their original schedule by a month or two.” Another engineer said it was now easier to say “No,” and he was no longer forced to drive the system development in accordance with the original schedule. He was sure that this was because of the diversification of the workplace. This change in the sense of time is caused by not only globalization but also by the expansion of the business scale. In Japan, Rakuten Ichiba has grown to such a scale that it is no exaggeration to say that it has created its own social infrastructure and any system failure carries a risk of major damage. Therefore, even if it takes some time, it is necessary to undertake careful preparations prior to upgrading the system. However, even now, the principle of “Speed!! Speed!! Speed!!”21 is ­emphasized. There has been no change to the code of conduct that aims to keep the steady growth of the company through the achievement of numerical goals measured by key performance indicators (KPIs)22 and detailed action plans. However, the sense of time has changed significantly since the introduction of globalization.

21 22

 “Speed!! Speed!! Speed!!” is one of Rakuten’s Five Principles for Success.  Rakuten emphasizes the importance of KPIs because its employees evaluate their daily perfor-

40

Y. Watanabe and K. Isomura

The second major change caused by globalization is the change in the scope of work. Similar to the sense of time, the perceptions of foreign engineers regarding the scope of work were very different from those of Japanese engineers. Before globalization, the Japanese engineers had a very broad range of duties. For example, a senior engineer in charge of a project performed various tasks such as system design, source code checking, management of entrusted programmers, and preparation of specifications and reports. Furthermore, numerous tasks had to be performed in the service operation business, such as troubleshooting, load control and monitoring in response to increased access, training of young engineers, and coordination with other departments. In other words, the Japanese engineers were required to be both specialists and generalists with diverse abilities. Conversely, many of the foreigners who were hired in response to increasing globalization were purely specialists. Many of them were technology-oriented and wanted to develop a service that made use of their specific technological knowledge and thus to develop a career based on their specialized experience. Many of them were so-called job hoppers who worked based on what was written in their job description. However, the ongoing operation of the service created various “gaps” that could not be included in job descriptions. For these people, the unexpected tasks that occurred in the operation of the service business and coordination with other departments were troublesome. Because they had been hired as programmers, they insisted that “It’s not my job.” The range of duties that were required to be performed gradually became clear, and the division of labor is developed based on the employees’ different working styles. For example, the role of the producer who was in charge of liaison with the business department was divided into two roles: product owner and project owner. The product owner role involved coordination with the business department, while the project owner role was involved in promoting the development project. Before globalization, one producer filled both roles, but the wide range of duties meant that the role of the producer had to be divided into two jobs. Regarding this division of labor, one engineer pointed out that “There was a point where it became difficult to link the business department and the system development department.” Meanwhile, some departments did not accept such changes. Rakuten Ichiba’s RMS development department emphasized the need for collaboration with the business department, and thus the producer continued to fill dual roles. We do not propose to discuss which approach is better but simply note that there was a significant difference in terms of the sense of responsibility and the scope of work between Japanese and foreign employees. Further, it is clear that Rakuten was forced to change their original approach in response to globalization. The strong links between the business department and the development department, the speed of work, and employees who were all-rounders and highly motivated by a sense of responsibility represented the organizational strengths of the former Rakuten. One manager commented that “To globalize is to accept global standards, including in

mance through KPIs and identify what they should do next to achieve their final goals.

3  The Creation of a Corporate Philosophy in a Japanese E-Commerce Company…

41

relation to personnel systems and ways of working.” As this manager noted, in accepting the challenges of globalization and scaling up, Rakuten had to adapt to the new environment and rebuild its strengths.

3.4.2  Providing Higher-Quality Service During an interview with a manager, one of the authors was told that “When you were with Rakuten, you had almost no chance to meet a merchant.” At the time when the author was working for Rakuten, system development producers and engineers had limited opportunities to talk with merchants and users. For example, there were several events each year such as the New Year Conference and the Rakuten EXPO,23 where merchants from around the country gathered. There was a development booth where merchants could ask questions about the system and interact with Rakuten employees, but there were few other opportunities. One manager said, “Not only producers but also engineers went directly to the merchant’s company to interact.” Meanwhile, in Rakuten Ichiba, where the number of merchants kept increasing, the amount of work for e-commerce consultants (ECCs) and business development managers to support merchants had also increased. The system development group, which provides support for business development, existed before globalization, but was not adequate as an organizational system. Looking back at the pre-globalization situation, one manager said: In the old days, I think the ability of the system development department to support business development was limited. The system development department was not able to support the sales, customer support, help desk, and marketing functions that each department wanted to undertake. Because we were growing so quickly, we were fully devoted to our day-to-day work, and even if we wanted to change and improve, we could not afford the time to do it.

Rakuten Ichiba’s services are supported by internal organizations such as ECCs, Web designers, call centers, and help desks. All this is aimed at helping Rakuten Ichiba merchants and users by improving usability. For example, competent ECCs propose effective sales planning and advertising strategies that maximize the strength of the merchant, taking into account the merchant’s situation and market trends. The ECCs use the big data accumulated by the company and consult with merchants using their own analysis tools. They assess their action plans using KPI management based on company and departmental goals. Rakuten Ichiba, which continued to grow after globalization, has sought to support its sales organization by IT technologies. One new development in this regard was the creation of a new department connecting Rakuten Ichiba’s business  The New Year Conference and the Rakuten EXPO are events for merchants. More than 2000 merchants participate in it, including a keynote speech by the CEO, lectures on sales promotion, and award ceremonies for excellent stores. And it is an opportunity to interact with other merchants.

23

42

Y. Watanabe and K. Isomura

d­evelopment and system development departments. The “Business Support Development Department” was created in 2016 with the goal of supporting Rakuten Ichiba’s business development. The aim of this business support was to improve Rakuten Ichiba’s sales force by developing a sales tool that ECCs could use to effectively support the merchants and then systematizing it. The organizing of business support system enabled engineers, who had previously had little contact with staff of other sections, to visit the help desk, meet the people in charge, and participate in discussions for problem-solving about improvement of technologies. Rakuten continues to innovate in relation to both hardware and software as both the internal and external environments change.

3.5  What Are Rakuten’s Core Values? Next, we examine the basis of Rakuten’s corporate philosophy. What has become clear as a result of the discussion in this chapter is that Rakuten’s corporate philosophy is based on two core values: “empowerment” and “merchant first.”

3.5.1  Empowerment as a Core Value First, as we saw in the outline of the process involved in creating Rakuten’s corporate philosophy, Rakuten has one key value: empowerment. In terms of the current Rakuten mission, empowerment has become an important keyword. Shinya Nakayama, manager of the Merchant Education Organization at Rakuten University, quoted Mikitani regarding the origin of empowerment in Rakuten: Now Rakuten is growing rapidly. However, this is not only due to the efforts of 100 people in Rakuten’s office. Don’t forget that 2,500 merchants are also growing rapidly because they are spending less time sleeping and more time creating Web pages and communicating with customers, and we can see their results. What we need to do is to help more merchants who can think and act on their own, instead of trying hard to increase sales. That is the meaning of Rakuten’s mission of empowerment.24

According to Nakayama, Mikitani’s message was delivered during an in-house training held in 2000 (when the number of employees exceeded 100). After the training, “thinking and doing by myself” began to be called “jisō.”25 Therefore, empowerment came to be considered as supporting the merchants’ “jisō.” “Jisō” has also become established as a common attitude among the Rakuten staff and has become a popular keyword in new employee education.

 Nakayama (2014: 90).  The literal translation of “jisō” is “self-propelled.” A more practical translation is “enhancing myself” or “self-managing.”

24 25

3  The Creation of a Corporate Philosophy in a Japanese E-Commerce Company…

43

Rakuten Ichiba has many success stories regarding small local merchants. This is the result of each merchant rediscovering the value of their goods and services through an Internet-based shopping mall. These merchants need to think continuously about the value of their services and products in the new market of the Internet. Because Rakuten Ichiba is a huge marketplace, there is no guarantee that a merchant will succeed by opening a store in this online mall. With many competitors already in the place, Rakuten Ichiba is a very competitive market. A product search using a single keyword will indicate similar goods, and merchants must experiment through trial and error to find ways to gain customers in this huge marketplace. In other words, a merchant cannot succeed without “jisō.” Therefore, Rakuten’s ECCs do not provide any definite answers that will lead to success for merchants, nor can they be taught. Only merchants themselves can find the key to success. Merchants will gradually discover the value of their handling products and services as they deliver them to new customers, either in Japan or elsewhere in the world. The role of the ECC is to support merchants in that process, and they continue to support merchants who keep thinking of and running toward success. This is the essence of Rakuten’s core value of empowerment for all members of Rakuten group. Rakuten’s environment, both online and offline, is IT-related. Then, the environment is rapidly changed. Therefore, both merchants and Rakuten employees need to empower themselves if they adapt to changes.

3.5.2  Merchant First as a Core Value The other core value for Rakuten is “merchant first.” In Rakuten’s B2B2C business model, merchants who connect Rakuten and customers are in the most important position. After the introduction of a pay-as-you-go tariff system that improved Rakuten’s revenue structure, Rakuten’s growth became highly dependent on merchant growth. Even now, experienced Rakuten managers say that “We are a service company.” This confirms that Rakuten’s foundation as a company lies in the shopping mall business named Rakuten Ichiba. Although Rakuten is a technology company, the core of its business is the provision of services. This has been Rakuten’s identity from its establishment. The core value of merchant first is relevant not only to the sales department but also to the system development department in Rakuten Ichiba. In the system development department, system development has long been called “service development.” This reflects the view that they are not developing a mechanical system but rather developing a service. One manager said, “It is only natural to write a program quickly and accurately. A good engineer can contribute to a system that can contribute to a service by providing insight into long-term technological and social changes. It can be done. The service development staff must build a system with consideration how our customers use it.”

44

Y. Watanabe and K. Isomura

It is easy to set the goal of “merchant first” as a core value in a service development company but is more difficult to carry it out in practice. Among the many challenges are the need for specific devices and efforts to achieve the desired outcomes. One problem common to Internet companies including Rakuten is that the convenience of developing the system often takes priority over usability because the existing technological infrastructure is difficult to change. This is the same problem that manufacturing plants face in relation to their mechanical equipment. In system development, the existing services, including servers, networks, and databases, are the limiting factor in relation to system modification. Large-scale computer systems of Rakuten Ichiba, which is used by 46,000 merchants and many customers, are difficult to operate to keep stable at all times. Rakuten is required to do major system update regularly while small improvement of system specifications is made. Ever since the inception of Rakuten Ichiba, Mikitani has said that it is “not a vending machine.” However, if it is not a vending machine, the question arises, what is it? It has a different meaning for each merchant and each customer. To provide variety through Rakuten Ichiba, Rakuten aims to create a system that enables merchants to express their ideas on their product pages. Providing Rakuten Ichiba with this service is a practical expression of Rakuten’s core value of merchant first.

3.6  Conclusion As discussed above, it is clear that Rakuten’s corporate philosophy is based on a system of values, the mission, and practices known as Rakuten Shugi. It is also revealed that Rakuten Shugi is based on its core values, empowerment and merchant first. Moreover, the two core values have been present since the establishment of Rakuten, despite significant environmental changes both inside and outside the company, such as Englishnization and globalization. Our conclusion is that Rakuten’s corporate philosophy reflects requirements to adapt to the rapidly changing corporate environment with the Internet. Indeed, Rakuten has been successful in the current market. New technologies and services are easily caught up and become obsolete; therefore, success is not guaranteed. In ever-changing environment, Rakuten’s stakeholders will not survive unless they keep thinking about and reacting to the changes. In other words, Rakuten’s stakeholders must keep pursuing innovation. It would be a reason why “innovation” has been listed as a keyword on Rakuten’s current corporate philosophy. The keyword “innovation” brings Rakuten’s two core values of “empowerment” and “merchant first” because these values offer a way to innovate. “Jisō,” or empowering oneself, is one means of self-innovation; interacting with merchants and continuing to provide new technology are other means of self-innovation. We consider that by practicing in accordance with these two core values, Rakuten will fulfill its mission to contribute (empower) to society.

3  The Creation of a Corporate Philosophy in a Japanese E-Commerce Company…

45

For Rakuten, Englishnization and globalization are not its goal but ways of creating new markets and adapting to them. Thus, Rakuten will become innovative and update its corporate philosophy with creating new phrases by identifying and overcoming new challenges in an ever-changing market.

References McFarlan WF, McAfee A, Eisenmann RT (2004) Rakuten. Harvard Business School Publishing, Brighton Mikitani H (2007) Seikō no konseputo (Principles for success) (in Japanese). Gentōsha, Tokyo Mikitani H (2013a) Marketplace 3.0: rewriting the rules of borderless business. Palgrave Macmillan, London Mikitani H (2013b) Rakuten’s CEO on humanizing e-commerce. Harvard Business School Publishing, Brighton Mikitani H (2018) Business-Dō: the way to successful leadership. Wiley, Hoboken Nakayama S (2014) Hitoke no aru shōbai (The lively e-commerce) (in Japanese). In: Mikitani H (ed) Hyūman komāsu: Gurōbaruka suru bijinesu to shōhisha (Human commerce: globalizing business and consumers) (in Japanese). Kadokawa, Tokyo, pp 69–105 Neeley T (2011) Language and globalization: “Englishnization” at Rakuten (A). Harvard Business School Publishing, Brighton Neeley T (2017) The language of global success: how a common tongue transforms multinational organizations. Princeton University Press, Princeton Rakuten, Inc. (2007) 10 nen shi (10 years’ history) (in Japanese). Rakuten, Inc., Tokyo Rakuten, Inc. (2008) Rakuten Shugi (Rakuten basic principles) (in Japanese). Rakuten, Inc., Tokyo Rakuten, Inc. (2017) Rakuten 20th anniversary book (in Japanese). Rakuten, Inc., Tokyo Sōmu shō (Ministry of International Affairs and Communications) (2010) White paper on information and communications in Japan. http://www.soumu.go.jp/johotsusintokei/whitepaper/eng/ WP2010/chapter4-1.pdf. Accessed 10 May 2019 Willenborg ST (2016) Rakuten: a case study on entering new markets through an innovative business-­ to-business-to-consumer strategy. In: Segers R (ed) Multinational management. Springer, Heidelberg, pp 203–220

Websites Rakuten, Inc. 2005–2017 annual reports. https://corp.rakuten.co.jp/investors/documents/annual. html. Accessed 10 May 2019 Rakuten, Inc. Our philosophy. https://global.rakuten.com/corp/about/philosophy/. Accessed 10 May 2019 Rakuten, Inc. Rakuten Shugi. https://global.rakuten.com/corp/about/philosophy/principle/. Accessed 10 May 2019

Chapter 4

Changes to the Corporate Philosophy in Response to Corporate Globalization: A Case Study of Globalization in Olympus Masahito Kitamura and Tetsuya Takahashi

Abstract  The corporate philosophy is generally considered to be an invariant and continuous foundation for management. However, some companies have changed their corporate philosophy over their long history to meet the demands of their ever-­ changing environments. Olympus, a Japanese manufacturer of digital optical products, has gone through four major revisions in its 100-year history. In this chapter, we examine the relationship between the processes of corporate globalization and changes in the corporate philosophy and corporate culture, by analyzing the changes in the corporate philosophy in response to new management perspectives in relation to the theme and content, and the subject and object of the message conveyed by the corporate philosophy.

4.1  Introduction In the era of globalization, various changes in society have driven the need for corporate globalization. One focal point in relation to the globalization of businesses is the corporate philosophy.1 Corporate globalization refers to activities that are undertaken to make a business successful in a range of countries that have diverse histories, cultures, and customs. With this in mind, the corporate philosophy plays an essential role in dealing with the complexities associated with the diversity encountered in many countries.

1  In this case, the company has officially established its corporate philosophy. In this chapter, we consider the concept of a corporate philosophy as equivalent with the concept of a management philosophy.

M. Kitamura Graduate School of Economics, Nihon University, Tokyo, Japan T. Takahashi (*) Tokyo Fuji University, Tokyo, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_4

47

48

M. Kitamura and T. Takahashi

In promoting the globalization of a company, a flexible and dynamic approach to managing this diversity is essential and is typically referred to as the business strategy. Generally, a company’s corporate philosophy is positioned as something that can be consistently maintained and thus remains unchanged. Normally, a strategic approach is adopted in response to change, and it is thought that the corporate philosophy provides a necessary non-changeable foundation in support of change. However, some of the companies promoting globalization continue to grow by also changing their corporate philosophy. In this chapter, we analyze the relationship between the growth process of companies promoting globalization and the change in the corporate philosophy that occurs and explore the relevance of changes in the corporate philosophy using a specific company as a case study.

4.2  Perceptions of the Corporate Philosophy Before embarking on the case study, it is important to review both the historical view and current thinking concerning corporate philosophy. For many years, the core research theme in the field of business administration was corporate strategy. Studies attempted to answer questions such as “Why did one company succeed and another company fail?”, “Why are there differences in corporate performance under the same business environment?”, and “How can a company stay ahead of its competitors?” Since the 1990s, following the end of the Cold War, markets in countries such as Brazil, Russia, India, and China have been growing rapidly. Meanwhile, we have seen the rapid development of the Internet and information and communications technology, which has meant that geographical differences have narrowed. Based on these factors, a wave of globalization emanating from the United States has engulfed the world. In other words, while the market has expanded rapidly on a global scale, geographical differences and time differences have disappeared, and thus as Thomas L. Friedman pointed out, “The world is flat.”2 As a result, the time base of competition between companies has become dramatically shorter, and we are now in an era where it is necessary to be flexible and adapt quickly. In other words, it can be said that change and flexibility are the most important attributes for companies. Conversely, even in an era when change and flexibility are necessary, the corporate philosophy has come to be seen as a foundation supporting change and a framework supporting flexibility. Ways of thinking about general corporate philosophy and the research viewpoint can be summarized as follows: 1. The meaning and significance of the term “corporate philosophy,” in other words, the positioning and definition of the corporate philosophy in corporate management, including analysis of the content, context, and vocabulary of the corporate  Friedman (2005).

2

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

49

philosophy. Furthermore, this includes the social significance of the corporate philosophy, that is, its relationship with society. 2. The influence of the corporate philosophy on corporate activities and management, in particular, the role of the corporate philosophy in the longevity of long-­ established companies. In addition, the relationship between the content of the corporate philosophy and business performance in relation to longevity management. 3. How to handle the corporate philosophy, that is, its inheritance, tradition, interpretation, and penetration, in other words, how corporate philosophy is inherited and passed down, and its formal application and significance, especially in long-­ established companies. Studies of different corporate philosophies are mainly based on the recognition that the corporate philosophy is the foundation of the invariant and continued existence of the company. However, the corporate philosophy is not immutable but is sometimes subject to revision. Olympus Corporation (hereinafter Olympus), which is one of top manufacturers of precision-engineered products such as digital cameras and medical devices, is a long-established company that will celebrate its 100th anniversary in October 2019. Currently, Olympus products, such as microscopes, cameras, and endoscopes, are produced in factories around the world, mainly in Japan, and are sold globally. In this respect, it can be said that Olympus is a global company. In other words, Olympus is a long-established company with a 100-year history, and its growth path has been one of globalization. Olympus established its basic philosophy at approximately the half-way point in its 100-year history and has since revised its corporate philosophy three times. Thus, while many other long-established companies have maintained their original philosophy despite the challenges of globalization, Olympus is a rare Japanese company in that it has changed its corporate philosophy several times. In this chapter, we focus on the case in which the corporate philosophy is not regarded as unchangeable and continuous but is regularly reviewed in the context of the growth and progress of the company. By focusing on the action of establishing and revising the corporate philosophy, we attempt to analyze the background to the changes that have occurred. Olympus is an example of a company that has changed their corporate philosophy in the course of their move toward globalization.

4.3  History of Olympus In this section, we review Olympus’s 100-year history before focusing on its corporate philosophy. Olympus was founded in October 1919  in Tokyo, Japan. The founder’s name was Takeshi Yamashita, and the company name at the time was Takachiho Manufacturing Co., Ltd. Yamashita manufactured the first microscope, with the

50

M. Kitamura and T. Takahashi

model name “Asahi,” in 1920. The original brand name was “Tokiwa,” but in 1921 a new brand name was registered as a trademark. Takachiho, the company name at the time of its establishment, refers to Takachiho in Miyazaki Prefecture in Japan, where it is said in Japanese mythology that there is a mountain peak where the Japanese gods and goddesses reside. Yamashita had aimed to export products overseas from the time of the company’s establishment, and Mt. Olympus, a mountain associated with gods and goddesses in Greek mythology in particular and Western culture in general, provided a link to the export targets, and so “Olympus” was chosen as a new trademark. In 1942, the company name was changed to Takachiho Optical Industry, and in 1949 it was changed to Olympus Optical Industry, incorporating the Olympus brand name. This not only provided consistency between the brand name and the company name but also reflected the dream of top management at the time of expanding operations from only selling in the Japanese market to selling in the world market. In 2003, it was renamed Olympus Corporation, which remains its name today.3 Olympus, which started with the production of microscopes in Japan, began to manufacture cameras in 1936, taking advantage of its optical and precision technology, and soon launched its first camera, the Semi-Olympus I. Later, factories were established in Suwa city and Ina city in Nagano Prefecture, and these factories contributed to Japan’s post-war recovery. During the period of confusion after World War II, a lot of people were affected by stomach diseases such as gastric ulcers as a result of a poor diet and the low level of sanitation in Japan. One doctor at the University of Tokyo Hospital came up with the idea of somehow being able to see inside the stomach and asked Olympus to develop an ultra-compact camera that would be able to take photographs inside a person’s stomach. As a result, in 1950, Olympus succeeded in developing the world’s first practical gastro-camera, the GT-I, which incorporated an ultra-compact camera at the end of a flexible tube. After that, the gastro-camera evolved into a fiberscope, and eventually into today’s endoscope. After World War II, there were numerous camera-makers in Japan, and thus Olympus had strong market competition during the post-war reconstruction period. However, cameras at that time were costly and were seen as luxury items. Therefore, Olympus decided to develop an innovative small, relatively inexpensive camera known as the “Olympus Pen,” which was released in 1959. This was a small camera like a pen that could be carried anytime anywhere and used film that was half the size of the standard 35  mm film used by existing cameras. The Olympus Pen changed the concept of the camera and became a top seller in a period of high economic growth, thereby increasing the popularity of Olympus cameras in Japan. Thus, Olympus established a foundation for integrated optical precision equipment manufacturing in three product groups, microscopes, cameras, and ­endoscopes.

3  https://www.olympus-global.com/company/milestones/founding.html?page=company (accessed at 2019/6/9).

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

51

These business areas, science, imaging, and medical, continue to be the three pillars of the Olympus business.4 Having sought to expand its export business since its inception, Olympus made its first overseas presentation in 1956 at the fifth Photokina exhibition, the largest camera show in Europe. In 1964, Olympus Europe was established as a local sales corporation in Hamburg, Germany, and in 1968, Olympus Corporation of America was established in New York, USA, providing Olympus with fully fledged export routes to Western markets. Along with the development of the overseas sales infrastructure, in 1963, Olympus established a manufacturing plant for endoscopes in Hachioji city, Tokyo. Later, this became a research and development base that served as the company’s technological innovation center. In 1970, Olympus established a production subsidiary for endoscopes in Aizuwakamatsu city, Fukushima Prefecture, that involved a mass production system. Thus, Olympus now had dedicated factories for the production of microscopes, cameras, and endoscopes and had established mass production systems to support export growth. In 1964, Tetsuo Nakano, who was the company president from 1961 to 1967, introduced three major policies focusing on (1) promotion of exports, (2) concentration of technology, and (3) the modernization of management. Furthermore, in 1968, the year before the 50th anniversary of the company, Olympus announced their first corporate philosophy, the “Basic Philosophy,” and introduced a management approach and organizational structure aimed at developing its global market. In 1972, a small, lightweight single-lens reflex camera known as the Olympus M-1 (which was changed to OM-1 the following year) was released, cementing Olympus’s status as a fully fledged camera manufacturer, which spurred dramatic growth in exports. Thus, Olympus established itself as an export company by embedding its R&D function in Japan and also building factories in Japan dedicated to the production of each product line while steadily developing an overseas network of sales subsidiaries and distributors. In line with the period of high economic growth in Japan, the three business areas all grew steadily, and exports continued to increase as planned.5 In 1985, Japan experienced a wave of significant changes. On 22 September, the Plaza Accord changed the exchange rate, which had previously been stable, and the sharp appreciation of the Japanese yen hit Japan and Olympus. The sudden appreciation of the yen shook Olympus’s management team and led to a sharp decline in operating income from exports, which had steadily increased. Toshiro Shimoyama, who was the company’s president from 1984 to 1993, positioned financial management as an essential management strategy in an attempt to shore up profits even slightly and began to actively invest in financial products. However, in 1990, Japan’s bubble economy collapsed, and Olympus’s losses increased. In an attempt to recover 4  https://www.olympus-global.com/ir/data/integratedreport/pdf/integrated_report_2018e_03.pdf Olympus innovation history (accessed at 2019/6/9). 5  https://www.olympus-global.com/company/milestones/history/01.html Olympus chronology (accessed at 2019/6/9).

52

M. Kitamura and T. Takahashi

these losses, Olympus started to invest in high-risk, high-return financial products, resulting in a dramatic increase in their losses, which reached about 100 billion yen in the late 1990s. Meanwhile, top management, who were struggling with these losses, faced the introduction of new current value accounting standards from March 2001. In response, they attempted to conceal the losses by transferring them to third parties and recording them as over-valued assets in the financial accounts. Consequently, losses that should have been fully disclosed remained hidden for about 20 years.6 Meanwhile, Olympus commenced fully fledged overseas production and acquired foreign companies to improve profitability by leveraging the strong Japanese yen. The business model followed by Olympus had gradually changed from a traditional export model, that is, products manufactured in Japan and shipped and sold overseas, to an international company whereby production occurred in various countries such as Japan, China, the United States, and Germany, and products were sold in markets throughout the world. In line with Olympus’s transition to an international company, a new corporate philosophy was established in 1994 that could be applied to the overseas subsidiaries. This new corporate philosophy was termed “Social IN” and referred to the social values in the company. 7 Returning to the financial losses, a number of schemes were adopted in an attempt to conceal these losses, which had been almost wholly recovered by around 2010. However, in response to the publication of an article in an investigative magazine, Michael C. Woodford, Olympus’s first British president, who took office in June 2011, was forced to reveal the hidden losses, which developed into a global accounting scandal known as the Olympus financial scandal. As a result of the scandal, all of the executives who had been involved either retired or resigned, and a new management team was put in place at an extraordinary shareholders meeting held on 20 April 2012.8 Under the new president, Hiroyuki Sasa, who was president from 2012 to 2019, the new management team formulated a recovery plan named the Olympus medium-­ term vision, which was officially announced on 8 June 2012. At the same time, the contents of “Social IN,” which was part of the corporate philosophy of Olympus, was reviewed, and a new group conduct charter was formulated. One of the key components of the Olympus medium-term vision was a significantly strengthened compliance management system. In addition, a review of the global organization was undertaken, resulting in a rationalization of the group through the closure of entities that were no longer required and special-purpose entities that had been set up to hide the losses. Further, the global management structure was optimized to maximize efficiency.

 Cooper (1994), Cooper (1997), Cooper and Slagmulde (2004).  Olympus adopts Social IN as a new corporate philosophy. https://www.olympus-global.com/ company/milestones/history/05.html?page=company (accessed 2019/6/9). 8  Williams and Takeshita (2011), Aronson (2012), Lorsch et al. (2013) Elam et al. (2014). 6 7

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

53

On 28 September 2012, Olympus announced the formation of a business-capital alliance with Sony Corporation and raised approximately 49 billion yen through the issue of new stock. Furthermore, they established a joint venture medical products company in Japan. In July 2013, new shares were issued on overseas markets that raised additional capital of approximately 112 billion yen. As a result of these financial measures, the equity ratio, which had fallen to just a few percent at one point, recovered to more than 30% by the end of March 2014, 2 years after the establishment of the new management team. As a result, Olympus was no longer in financial crisis. At the same time as the financial accounting scandal engulfed the head office in Japan, the US Department of Justice launched an investigation into Olympus’s US and South American subsidiaries in response to suspicions of bribery in relation to Olympus’s sales, marketing, and repair service activities involving healthcare professionals and government officials within Olympus’s medical business customers. A 3-year investigation uncovered numerous inappropriate activities. In March 2016, following a year of legal negotiations with the US Department of Justice, Olympus was fined a total of US$646 million, comprising US$623.2 million in the United States and US$22.8 million in South America.9 As a result of the financial scandal at the head office in Japan and the bribery scandal involving the medical products business in the Americas, strengthening the group’s compliance system, including corporate governance, became the main priority for Olympus. Meanwhile, management’s reconstruction of the group continued with the implementation of a medium-term corporate strategic plan, known as “16CSP,” which was aimed at Olympus “becoming a world-class player in the medical business,” thereby adopting a new growth strategy. The 16CSP strategy involved a major shift from the original “balanced” business foundation of life science, imaging, and medical products to a concentration on the medical products business. The strategic plan, while continuing to focus on the endoscope business, included a greater focus on the treatment and surgery fields and the expansion of the disposable medical devices business. In 2018, a new corporate philosophy was introduced to further unite the entire group. This involved a completely new approach to the corporate philosophy consisting of “Our Purpose” and “Our Core Values” and was designed as a foundation to enable Olympus to become a truly global company. The aim was to foster a sense of unity among all employees in the global Olympus group for the next 100 years following the 100th anniversary of the founding of the company in 2019.10

9  Micklethwait and Dimond (2017) pp.95–118, Kitamura (2018). The following websites are also informative: https://www.olympusamerica.com/corporate/corp_presscenter_headline. asp?pressNo=1051 (accessed at 2019/7/6), https://www.olympusglobal.com/ir/data/announcement/pdf/td160302e.pdf (accessed at 2019/7/6). 10  https://www.olympus-global.com/ir/data/integratedreport/pdf/integrated_report_2018e_01.pdf (accessed at 2019/6/9).

54

M. Kitamura and T. Takahashi

4.4  Corporate Philosophy of Olympus As noted in Sect. 4.3, the first 100 years of Olympus’s history, from its founding in 1919 to the 100th anniversary in 2019, can be said to be a period of progress toward globalization. During this period, Olympus established a basic philosophy, which became its corporate philosophy. This corporate philosophy was subsequently amended three times in response to the major events detailed above. In this section, we review the contents of the various versions of Olympus’s corporate philosophy. Olympus did not have a clearly written corporate philosophy at its founding. However, at that time, Japan’s goal was to catch up with Western society as soon as possible. The founder, Takeshi Yamashita, wanted to somehow make “original Japanese microscopes” with his own hands. Further, he wanted to export these microscopes to the Western market as soon as possible. It can be seen that this was his clear philosophy at the founding of the company, as the brand name Olympus demonstrates. In other words, the name “Olympus” reflected the founder’s passion for creating a world-class product. Olympus established its first corporate philosophy, the “Basic Philosophy,” in 1968, 1 year before its 50th anniversary: Olympus is keen to contribute to the advancement of culture and science by supplying products that are sought by customers around the world in the field of precision machines centered on optical devices. The basic philosophy for management is set out below: 1. Always develop advanced technologies; maintain firm and proactive management; cultivate the ability to cope with the international competition; and aim for expansion and development of the company. 2. With a small number of highly skilled employees, establish self-responsibility. Labor and management will work together to achieve high efficiency and high income and will create a genuinely organized workplace. 3. Ensure the absolute trust of customers by improving quality and providing quality service support.11

At the time of the enactment of this basic philosophy, Takatomi Naito (president from 1967 to 1973) commented: Shifting from the era of domestic competition to the era of international competition and in response to this fundamental change and to further develop our company under international competition, it is necessary to change our management attitude.12

In 1968, Olympus’s sales revenues were about 11.7 billion yen (US$32 million), although the export sales ratio was only 27%, and thus the company still had a domestic-focused business structure. In short, it was a strong management statement of intent to further increase exports and enhance the company’s international competitiveness.

11 12

 Olympus (1969) p.369.  Olympus (1969) p.370.

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

55

Fig. 4.1  Social IN (Olympus corporate philosophy in 1994)

Entering the 1990s, while actively promoting overseas production, Olympus acquired a number of foreign companies to further its access to overseas markets, that is, it embarked on a program of internationalization, aided by a strong Japanese yen. In 1994, Olympus introduced “Social IN” as its corporate philosophy. This name was intended to reflect Olympus’s commitment to “helping people to live healthy and happy lives.” “IN” represented three words that commenced with the letters “i” and “n”: • Involvement – fusion with society • Insight – sharing values with society • Inspiration – proposing new values In other words, “Social IN” was a way to encompass social values in the company and establish a relationship between the company and society (see Fig. 4.1). The Social IN corporate philosophy was announced simultaneously with the release of a new management vision for the twenty-first century termed “Focus 21.” This showed the company’s intention to further internationalize its operations, not only in terms of a business goal but also to actively promote the company’s relationship with society in the twenty-first century. The Olympus management scandal that occurred at the end of 2011 threatened the survival of the company, and so the new management team, which was launched in April 2012, set about rebuilding the company, adopting a management policy of “Back to Basics.” Regaining trust was a critical issue, and thus the corporate philosophy and corporate conduct charter were reviewed. In June 2012, the three “in” words were changed to link with the six actions of the corporate conduct charter: • Integrity – integrity in society • Innovation – creating innovative value • Involvement – social involvement

56

M. Kitamura and T. Takahashi

Fig. 4.2  Revised Social IN (Olympus corporate philosophy in 2012)

This revised Social IN corporate philosophy further emphasized the company’s relationship with society (see Fig. 4.2).13 The design of the chart outlining the company’s corporate philosophy was also changed to place greater emphasis on Social IN, while the six actions of the corporate conduct charter were presented in conjunction with the three “INs,” which emphasized both the company’s declaration to society and its message to employees. A new corporate philosophy was announced in 2018, 1  year before the 100th anniversary of the company’s founding. The format of this new corporate philosophy was entirely different from the previous format and was composed of new content, “Our Purpose” and “Our Core Values.” 14“Our Purpose” represented the company’s vision of “making people’s lives healthier, safer, and more fulfilling”: Supporting cutting-edge medical procedures and scientific discoveries. Helping make people feel safer and more secure. Capturing life’s most precious moments. Through our business activities, we aim to contribute to global society by making these things happen. This is the purpose of our existence.

“Our Core Values” comprised the five values of integrity, empathy, long-term view, agility, and unity (see Fig. 4.3): These values are shared among all global Olympus employees and are reflected in everything we do at Olympus. They are the very values that will let us realize Our Purpose.

The formulation of this new corporate philosophy was through approximately 300 employees being selected as “ambassadors” from among employees of all the

 https://www.olympus-global.com/ir/data/integratedreport/pdf/ar2013e_02.pdf (accessed at 2019/6/9) 14  https://www.olympus-global.com/company/philosophy/philosophy.html?page=company (accessed at 2019/6/9) 13

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

57

Fig. 4.3  Our Purpose and Our Core Values (Olympus corporate philosophy in 2018)

global group companies. The ambassadors’ mission was, in addition to an examination of the content of the company’s core values, to communicate the company’s core values and embed the necessary behaviors in all employees. This change in approach was designed to ensure that the core values penetrated the lives of employees, rather than merely being seen as declarations to society. This major cultural change involved approximately 36,000 employees working in various locations around the world and was aimed at ensuring that everyone in the global organization was driven by the same values.

58

M. Kitamura and T. Takahashi

4.5  Globalization and the Corporate Philosophy In Sect. 4.3, we reviewed the history of Olympus’s 100-year push toward globalization, and in Sect. 4.4 we outlined the changes in the company’s corporate philosophy during that period. In this section, we analyze the relationship between globalization and the corporate philosophy. As already stated, the 100-year history of Olympus is a long history of globalization. However, this Olympus historical progress was not linear but rather proceeded in steps, with several phases involving changes brought about by a number of significant events. The period from the founding of the company in 1919 to the 1950s, which can be defined as the “business foundation construction period,” saw the company start by manufacturing microscopes and then expand into the camera business. During this period, factories dedicated to the production of microscopes and cameras were built, and domestic sales steadily increased. Meanwhile, Olympus’s innovations led to the development of the gastro-camera. Following the social turmoil caused by World War II, the company stabilized its business foundation, domestic production, and sales development. However, it was still a Japan domestic market-centric business. The period from the 1960s to the 1980s was a period of growth that can be defined as the “export expansion period.” Olympus formulated its “Export Basic Policy” in 1955 with the goal of increasing exports to 30% of total sales. The company established sales bases in Europe in 1964 and the United States in 1968 with a particular focus on exporting cameras, such as the Pen series and the OM series, which were significant contributors to the expansion of Olympus’s export business. Sales revenues in 1968 were about 11.8 billion yen (US$32 million), of which exports accounted for 27% (see Table 4.1). The period from the 1990s to 2011 was the “internationalization period,” during which Olympus gradually expanded its overseas sales and service bases aided by the strong Japanese yen following the Plaza agreement of 1985. The company continued to grow through the acquisition of foreign companies and the establishment of a series of manufacturing bases around the world. The period from 2012 to 2018 was the “management reconstruction period” following the head office financial scandal that occurred at the end of 2011 and the US bribery scandal that was settled with the US Justice Department in 2016. The business structure was changed to focus on the medical products business, and the company returned to a sound financial position. The compliance management system Table 4.1  Globalization indicators Year Total sales (Million Yen) (Million US$) Export/overseas sales ratio Overseas subsidiaries Note (consolidation)

1958 1471 4 19.5% 0 Non

1968 11,743 32 27.0% 3 Non

1998 364,982 2788 44.1% 31 Consolidation

2013 743,851 7619 61.4% 153 Consolidation

2018 786,497 7124 80.4% 81 Consolidation

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

59

was also reviewed, and the group’s approach to corporate governance was strengthened. In January 2019, the year of the 100th anniversary of the founding of the company, a change of president was announced. Yasuo Takeuchi, the new president and CEO, announced that he would introduce significant changes to the company’s governance system and confirmed Olympus’s aspirations to become a “global med-tech company.” He declared the company’s aim to be a “truly global company” on the occasion of the 100th anniversary. This can be seen as the commencement of the “globalization period.” Thus, Olympus’s 100-year history can be divided into five distinct stages: business foundation construction, export expansion, internationalization, management reconstruction, and globalization. Olympus’s 100-year history, described in detail in Sect. 4.3, can be divided into five stages, each of which involved significant business changes. Therefore, it is important to examine the differences in these five stages in terms of total sales, export or overseas sales, the export or overseas sales ratio, and the number of overseas subsidiaries. It can be seen that Olympus’s history is a push toward globalization, involving a significant increase in exports and the development of a global organization including numerous foreign subsidiaries. Next, we need to consider the changes in management issues during the five stages on the path to Olympus’s globalization. The changes executed by Olympus’s management are summarized in Table 4.2, which shows the management strategies, business issues, and main investment targets in each stage. It can be seen that the 100-year history of Olympus did not proceed in a straight line but rather moved through five crucial stages of growth driven by the desire to achieve globalization. Having confirmed that Olympus’s history can be divided into five stages, here we analyze the relationship between these stages and Olympus’s corporate philosophy. In Sect. 4.4, the various changes to Olympus’s corporate philosophy were outlined: • • • • •

Founding Philosophy (1919). Basic Philosophy (1968). Social IN (1994). Revision of Social IN (2012). Our Purpose and Our Core Values (2018).

Table 4.2  Management issues in the five stages of Olympus’s development Period Mgt. strategy

1919–1950s Business foundation construction Mgt. issues Technological improvement Production plant Main investment

1960s–1980s Export expansion

1990s–2011 International management

2012–2018 Management reconstruction

Overseas sales ability Overseas agency

Overseas mgt. Trust recovery Ability Overseas Compliance subsidiary system

2019– Globalization

Group governance Governance system

60

M. Kitamura and T. Takahashi

Table 4.3  Olympus’s corporate philosophy Year Title name Contents

1919 Founding philosophy Make a world-­ class product

Characteristics Not described

1968 Basic philosophy Export expansion by improving international competitiveness

1994 Management philosophy Promoting internationalization and strengthening relationships with society

2012 Management philosophy Recovery of trust from society

First management philosophy

External message through creative use of the word in

Interlocking with the conduct charter

2018 Corporate philosophy Unity of group employee by the our Purpose and our Core values Formulating and penetration by the employee ambassadors

The characteristics of these five corporate philosophies are summarized in Table 4.3. It can be seen from the above explanations that the histories of both Olympus’s process of globalization and its corporate philosophy can be divided into five stages. Matching the five stages of the process of globalization with those of the corporate philosophy reveals an interesting relationship. Table  4.4 shows the five stages of both Olympus’s process of globalization and its corporate philosophy. It can be seen from Table 4.4 that the five stages of the process of globalization and the corporate philosophy are closely related, as outlined below.

Table 4.4  The five stages of Olympus’s process of globalization and corporate philosophy Globalization Period 1919–1950s Mgt. Business Strategy foundation construction Mgt. Technological Issues improvement Corporate philosophy Year 1919 Contents Make a world-class product

1960s–1980s Export expansion

1990s–2011 International management

2012–2018 2019– Management Globalization reconstruction

Overseas sales ability

Overseas Trust recovery Group management ability governance

1968 Export expansion by improving international competitiveness

1994 Promoting internationalization and strengthening relationships with society

2012 Recovery of trust from society

2018 Our Purpose and our Core Values

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

61

1. Business Foundation Construction Period During the period from 1919 to the 1950s, the main management issue was the improvement of technical skills. The company’s founding philosophy in 1919 was to make world-class products. 2. Export Expansion Period During the period from the 1960s to the 1980s, the business direction was to improve the company’s overseas sales ability to increase export sales. Therefore, in 1968 the company formulated its basic philosophy aimed at expanding exports by improving international competitiveness. 3. Internationalization Period In the period from the 1990s to 2011, the number of overseas subsidiaries increased rapidly, and overseas management ability became the main management issue. Therefore, in anticipation of the twenty-first century, in 1994, the company announced a new corporate philosophy known as Social IN, which advocated the promotion of internationalization and the strengthening of the company’s relationship with society. 4. Management Reconstruction Period In the period from 2012 to 2018, the recovery of the trust of all stakeholders who had been damaged by the Olympus management scandal was the top priority. Therefore, further amendments to the corporate philosophy were immediately implemented after a new management team was installed. Meanwhile, efforts were made to improve the governance of employees with the introduction of a corporate conduct charter. 5. Globalization Period With the business restructuring following the Olympus financial scandal almost finished, senior management declared that further business globalization and additional growth were the company’s long-term goals. The main management issues were the enhancement of governance of the entire group, including all overseas subsidiaries, and uniting all employees. Therefore, in 2018, the company established Our Purpose and Our Core Values as the basis of a new corporate philosophy. The above summary confirms that the evolution of the company’s corporate philosophy is both linked to and forms the foundation of the five stages in the process of globalization of Olympus. At each stage, the corporate philosophy changed in response to the top issues management faced at the time.

4.6  Evolution of the Corporate Philosophy In the previous section, we divided Olympus’s 100-year history of progress toward globalization into five major stages and confirmed that the corporate philosophy changed in each stage. Thus, it is clear that if a company is to make progress in terms of globalization, it must make significant changes to its management strategy, investment targets, and organizational structure in response to changing

62

M. Kitamura and T. Takahashi

c­ircumstances. Employees need to be aware of these changes, and this can be achieved through an influential corporate philosophy. In the case of Olympus, the evolution of its corporate philosophy has followed its history of progress toward globalization. Below, we analyze these changes in more detail. Olympus has revised its corporate philosophy four times during its 100-year history, so what has changed in the evolution of the corporate philosophy? It is important to note that it is not only a change in wording that is involved but also a change in the philosophy’s structure and application and their influence on the behavior of the employees. First, as shown in Sect. 4.5, there is a clear linkage between the management strategy and the corporate philosophy. As companies grow and embrace globalization, the business environment in terms of their markets and customers changes dramatically, and to cope with these changes, management needs to revise its strategies relating to their main target markets and investments. To symbolize these major changes in the management strategy, the corporate philosophy will need to be revised. In other words, changes in the business environment are the background to changes in the management strategy, and a revised corporate philosophy becomes a symbol of the changes in the management strategy. In short, major changes in the management strategy are the reason for changes in the company’s corporate philosophy. Next, we examine the changes in the theme and content of Olympus’s corporate philosophy. As shown in Table 4.3, the corporate philosophy has been revised at each stage of Olympus’s process of globalization, and its content has changed significantly. Specifically, the theme relates to the basic concepts and direction of the philosophy, while the content outlines the underlying corporate strategic approach: • The basic philosophy developed in 1968 set forth the company’s mission to “contribute to the advancement of culture and science by supplying products that were sought by customers around the world,” with four main sentences providing the specific content. • In the Social IN corporate philosophy released in 1994, the theme of “helping people to live healthy and happy lives” was presented and explained. The aim was to establish a relationship between the company and society using three words beginning with “in” as the content. • The revision of the Social IN corporate philosophy in 2012 retained the concept of Social IN as the theme, while three new words beginning with “in” that were related to the six actions included in the code of conduct formed the content. The intent was to illustrate how senior management required employees to act so as to develop the desired relationship with society. • In 2018, the corporate philosophy based on Our Purpose and Our Core Values had the theme of “making people’s lives healthier, safer and more fulfilling,” while the five core values defined the content. Thus, as can be seen above, the corporate philosophy has included a clearly stated theme and supporting content at each stage.

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

63

The purpose of developing a corporate philosophy is to send a specific message, and so a revision of the corporate philosophy can be viewed as a change in the way of communicating that message. If the corporate philosophy is considered to be a message, this implies that there is a sender of the message and a recipient of the message, in other words, a “subject” and an “object,” respectively. Here, we examine the subject and object based on the various versions of the corporate philosophy that have been developed during Olympus’s 100-year history: • First, although the founder’s philosophy at the time of founding was not written down, it can be said that the founder followed this unwritten code. Thus, it can be considered as a “self-declaration” wherein the founder is both subject and object. • In the basic philosophy released in 1968, the subject was the president and his management team, and the preamble outlined the company’s mission and direction. In addition, there were four items of content relating to four different stakeholders, that is, objects: (1) the management team themselves, (2) employees, (3) customers, and (4) business partners. • In the Social IN corporate philosophy released in 1994, the subject was expanded from the management team to the entire company, and the object was society. This philosophy clearly states that “the aim is to establish a relationship between the company and society.” • The main objective of the revision of the Social IN corporate philosophy in 2012 was to restore global and domestic stakeholders’ confidence in Olympus following the management scandal. Therefore, the Social IN concept remained unchanged, in that the subject was still the company and the object was still society. The main focus was on the revision of the subject’s theme and content through changing the “in” words. However, the corporate conduct charter was thoroughly revised along with the corporate philosophy, and a chart of the new Social IN corporate philosophy showed the six specified conducts in addition to the three “in” words supporting the revised corporate philosophy. This conveyed an additional message from the company to the employees. • The revision in 2018 changed the overall structure of the corporate philosophy. The theme and content were changed to Our Purpose and Our Core Values, and the subject and objects changed significantly. As the word “Our” suggests, the subject was once again the entire company, while the objects were both the employees and the broader society. The changes to the Social IN corporate philosophy in 2012 sent an additional message to employees via the corporate conduct charter. The subsequent changes in 2018 confirmed that the employees were both the subject and object of Olympus’s corporate philosophy. To enable easy identification of the company’s corporate philosophy at each stage, it is important to examine the names applied to the corporate philosophy, which are listed below:

64

M. Kitamura and T. Takahashi

• The founding corporate philosophy was not documented but can clearly be referred to as the “Founding Philosophy.” • The “Basic Philosophy” that was introduced in 1968 was named to reflect the fact that it was the first documented management philosophy. • The “Social IN” philosophy that was introduced in 1994 was termed the “Management Philosophy” in Japanese, and so when it is expressed in English, it is not the “Corporate Philosophy” but the “Management Philosophy.” • The revision of the “Social IN” philosophy that was introduced in 2012 was also clearly termed the “Management Philosophy” in both Japanese and English. • In 2018, the terms “Our Purpose” and “Our Core Values” were also the terms used in English. Furthermore, in the explanatory notes, the “Corporate Philosophy” was officially identified as a general term encompassing “Our Purpose” and “Our Core Values.” Thus, it can be seen that the formal titles used for the corporate philosophy at each stage are closely related to the underlying structure of the philosophy, the reason for the changes, the theme and content of the philosophy, and the subject and object of the message. As described above, Olympus’s corporate philosophy has changed as the company has progressed through five stages during its 100-year history. The essence of the five versions of the corporate philosophy is as follows. The changes in the business environment that accompanied the development of the company toward globalization was the background, and the change in management strategy was the reason for the revised corporate philosophy that became a symbol of the change. The change in the corporate philosophy was marked by changes in the theme and content, as well as the subject and the object. In this chapter, the changes to the corporate philosophy at each stage are referred to as revisions, while the overall changes over the 100-year period are referred to as change. Similarly, at each stage, while the title changed, the overall title is the “corporate philosophy,” to distinguish it from the “management philosophy” and other related philosophies. Table 4.5 summarizes the changes in Olympus’s corporate philosophy over the five stages of its 100-year history.

4.7  Cultural Translation of Olympus’s Corporate Philosophy Looking back on the 100-year history of Olympus, the globalization of the business and the revision of the corporate philosophy occurred in five significant stages. These reflected the need for the company to change its culture and approach to business against the backdrop of globalization. Thus, the Olympus case is an excellent example of the main focus of this book, “Cultural translation of the management philosophy.”

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

65

Table 4.5  Changes in Olympus’s corporate philosophy Year Title name Contents

1919 Founding philosophy Make a world-class product

1968 1994 Basic philosophy Management philosophy Export expansion Promoting internationalization by improving and strengthening international competitiveness relationships with society

Subject

Founder

Management team

Entire company

Object

Founder himself

Management Employee Customer Partner

Society

2012 Management philosophy Recovery of trust from society

2018 Corporate philosophy Unity of group employee by the our Purpose and our Core values Enterprise Entire company and company including employee employee Society and Society and employee employee themselves

As outlined in Sect. 4.6, Olympus’s corporate philosophy has passed through five stages in its 100-year history. Its development can be firmly attributed to the increasing globalization of Olympus’s business, and its path toward globalization has been consistent for 100 years. At the time of Olympus’s establishment, Japan was still a developing country, and manufacturing and selling products domestically were the norm. However, the founder’s dream was to sell Japanese products in overseas markets such as the United States and Europe. This dream was reflected in the founder’s choice of “Olympus” as the brand name and company name. In other words, it can be argued that globalization was always the aim of the company, and this guided the fundamental continuous direction of Olympus. Globalization has served as a compass that has always gone beyond the scope of mere goals for the company. Thus, it can be assumed that because the aim of globalization provided a continuous direction for the company in all eras, it was possible to revise the corporate philosophy in response to the management situation at each stage of the company’s history. It comes as no surprise that a technology-oriented company such as Olympus included the keywords “technology” and “quality” in the earliest version of its corporate philosophy. However, these keywords have not received as much emphasis in the subsequent stages of the company’s history. This raises the question of why these keywords have not been retained. One possible answer for above question is the concept of monodzukuri which has long been a part of Japanese culture. All who work for Olympus seems to have an innate understanding that they must not become lazy in relation to monodzukuri. The concept of monodzukuri refers not only to simple manufacturing but also to all the elements and operations that create a product, such as design, technology, and quality control. This is represented by a thorough process known as control of

66

M. Kitamura and T. Takahashi

q­ uality, cost, and delivery (QCD) management. The principles of manufacturing “a product with high-level technical features and performance that is superior to the product of a competitor and is always of the highest quality” are maintained throughout the entire Olympus organization. Thus, this invariant spirit can be seen as the DNA of the organization. Therefore, the essential elements of monodzukuri, such as technology and quality, are intrinsically built into the DNA of Olympus, and thus it is not necessary to emphasize these keywords in the company’s corporate philosophy. It can be said that the direction taken from the time of establishment toward globalization using Olympus as the brand and company name and the presence of monodzukuri in the DNA of the company are the foundation of Olympus’s corporate culture. As described above, the path toward globalization and the DNA of monodzukuri have been consistently maintained as an invariant and continuous corporate culture for 100  years, while the corporate philosophy has been revised in response to the various significant changes that have occurred. In the previous section, it was noted that Olympus’s “invisible” corporate culture was based on the direction provided by the aim of globalization and the DNA of monodzukuri that reflected a desire to manufacture the best products. Thus, Olympus’s corporate philosophy has been based on this corporate culture, as detailed below: • The founding philosophy was the starting point for the corporate culture, with the path toward globalization and the monodzukuri DNA forming the basis of the vision to “make products that are world-class.” • The Basic Philosophy adopted a concrete business target of manufacturing products to export to European and US markets, which had been the dream from establishment. • The introduction of the Social IN corporate philosophy recognized the need for organizations to be socially responsible if they were to be competitive internationally. • The revision of the Social IN corporate philosophy was a reaffirmation of the company’s commitment to corporate social responsibility and further clarified the message to all employees. • The introduction of Our Purpose and Our Core Values promoted unity and cohesion among approximately 36,000 Olympus employees working in various locations around the world, as reflected in the use of the word “Our.” In other words, this was a renewed declaration of the desire to become a truly global company that aims to unify all employees and subsidiaries around the world. Thus, Olympus has maintained its continuous direction toward globalization and the invariant DNA of monodzukuri as the foundation of its corporate culture throughout its 100-year history and has revised its corporate philosophy to reflect the corporate culture at each stage of the journey toward globalization.

4  Changes to the Corporate Philosophy in Response to Corporate Globalization…

67

4.8  Conclusion This chapter has examined the 100-year history of Olympus to analyze the changes in management and business practices that have occurred along the path to globalization and how the company’s corporate philosophy has been revised in conjunction with these changes. As mentioned at the outset, the corporate philosophy of enterprises is usually considered to be invariant and the basis for continuity. However, Olympus’s case demonstrates how the corporate philosophy has changed to reflect the changes in the business environment that have occurred during the growth of the company. Regarding the structure of the changes, the theme and content of the corporate philosophy were reviewed, and it was confirmed that both the subject and object changed as the message changed over time. To enable a thorough understanding of these changes, the corporate philosophy was examined at each stage. Meanwhile, an invariable sense of values has been provided by the concept of monodzukuri, which has been part of the DNA of Olympus since it was founded, and the continuous direction of the company has been provided by the goal of globalization. Thus, there has been an influential underlying corporate culture that has been passed down the line over the 100-year history of the company. This is why Olympus’s corporate philosophy has evolved in line with the various stages it has progressed through along the path to globalization, which has acted as the company’s compass during its 100-year history. This chapter has focused on analyzing the case of Olympus from a historical perspective, but similar analyses could be applied to other organizations. Furthermore, analyses of other cases in which there have been changes to an organization’s corporate philosophy might confirm the possibility that the corporate philosophy is not an invariant and continuous concept but one that changes over time to enable the organization to respond to changes and survive and prosper.

References Aronson BE (2012) The Olympus scandal and corporate governance reform: can Japan find a middle ground between the board monitoring model and management model? UCLA Pacific Basin Law Journal 30(1):93–148 Cooper R (1994) Olympus optical company, Ltd. (B): functional group management. Harvard Business Publishing, Brighton Cooper R (1997) Olympus optical company, Ltd. (A): cost management for short life-cycle products. Harvard Business Publishing, Brighton Cooper R, Slagmulde R (2004) Achieving full-cycle cost management. MIT Sloan Manag Rev 46(1):45–52 Elam D, Madrigal M, Jackson M (2014) Olympus imaging fraud scandal: a case study. Am J Bus Educ 17(4):325–332 Friedman TL (2005) The world is flat: a brief history of the twenty-first century. Farrar Straus & Giroux, New York

68

M. Kitamura and T. Takahashi

Kitamura M (2018) Olympus keiei fushōji ni kansuru jirei kenkyū (A case study of ‘The Olympus scandals’: from the viewpoint of corporate globalization) (in Japanese). Keiseironsū (Graduate School of Economics, Nihon University) 43:19–40 Lorsch J, Srinivasan S, Durante K (2013) Olympus (A). Harvard Business Publishing, Brighton Micklethwait A, Dimond P (2017) Driven to the brink: why corporate governance, board leadership and culture matter. Palgrave Macmillan, London Olympus (1969) 50 nen no ayumi (50 years’ history) (in Japanese). Olympus, Tokyo Williams C, Takeshita S (2011) Olympus and the whistleblower president. Ivey Publishing, London

Chapter 5

Transmission of Management Philosophy: Beyond the Differences in Customs and Norms in Foreign Cultures Masayo Fujimoto

Abstract  This paper focuses on the phenomena that arise when trying to convey management philosophies in foreign cultures and indicates conflict and interactions arising between the company on one side and the social environment and local personnel on the other. Seconded managers from Japanese companies are expected to convey not only the knowledge of how to do the work but also attitudes toward work and management philosophies so that the company can provide products from a region with a different culture than Japan with the same level of quality as those products produced in Japan. However, seconded managers are struck by a variety of problems in this process because of language barriers and differences in customs and social norms. This study examines the case of blue-collar workers in China and white-collar workers in the United States. In the local social environment, the seconded managers serve as the interface in trying to fuse companies’ ideals with the local institution. Japanese companies emphasize “awareness” (the ability to predict situations/analytic capabilities), and these are abilities that are often not codified. One must cultivate “social humans” with a sense of the commons in order to approach this abstract concept.

5.1  Introduction This paper focuses on the phenomena that arise when trying to convey management philosophies in foreign cultures and indicates the type of conflict and interactions arising between the company on one side and the social environment and local personnel on the other. It has been a long time since the Japanese manufacturing industry began placing hubs overseas, and the industry is developing in a number of regions, with everything from labor-intensive factories to cutting-edge research laboratories. Seconded managers from Japanese companies (manager who is ­dispatched from Japanese headquarter) are expected to convey not only knowledge M. Fujimoto (*) Faculty of Social Studies, Doshisha University, Kyoto, Japan © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_5

69

70

M. Fujimoto

of how to do the work but also attitudes toward work and management philosophies so that the company can provide products from a region with a different culture than Japan with the same level of quality as those products produced in Japan. However, seconded managers are struck by a variety of problems in this process due to language barriers and differences in customs and social norms. A management philosophy requires not only clearly stating the management philosophy and establishing a structure for implementation but also indicating the ethics and social norms implicitly shared by employees within the management activities. Consequently, indexing and measuring the process of transmission for the theoretical concept of “management philosophy” is exceptionally difficult work. However, in the actions that they emphasize and institutionalize for the company’s management activities, there is a praxis that is steeped in the company’s management philosophy. This study provides a qualitative exploration of phenomena arising in the process of trying to spread management philosophies to local employees and, from this, gains an understanding of the process of transmitting management philosophies. In Sect. 5.2, I indicate the analytical framework for observing the relationship between seconded managers and local employees. In Sect. 5.3, I present a case of the transmission of a management philosophy to people familiar with the policies of state-­ managed enterprises in China at the Chinese branch offices of Matsushita Electric Industrial between the mid-1990s and the early 2000s. In Sect. 5.4, I present a case of the transmission of a management philosophy in a developed country at the same company’s North American branch offices in the 1980s. In Sect. 5.5, I present the case of the Chinese subsidiaries for Company B, a telecommunications device manufacturer, for which a survey was carried out in 2005 and 2006. In Sect. 5.6, I present a case related to the responses of a Japanese company to specialist personnel with advanced schooling in the high mobility region of Silicon Valley in the United States for which a survey was carried out between 2007 and 2010. In Sect. 5.7, I present a summary and state my conclusions.

5.2  Analytic Framework This section indicates the framework of analysis for examining interactions between local employees and seconded managers from Japanese companies. Comparisons and examinations are made from four points of view to observe the phenomena that arise in the process of conveying the policies of Japanese companies in foreign cultures. For the first point of view, I focus on the educational particularities of the local employees. While Japanese companies attempt to transmit their management philosophies, it was expected that differences in understandings of and responses to the policies of Japanese companies would arise between middle-aged employees who had experienced the old system (the system of the state-managed enterprise era and Chinese education) and the younger employees who had not. Consequently, this paper presents a comparison of how management philosophies are received between generations in China. For the second point of view, I focus on the work particulari-

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

71

ties of local employees. Interviews were conducted with the seconded managers who managed the local white-collar employees at Matsushita in the United States, and a comparison was made of differences (and similarities) with factories mostly operated by blue-collar workers, which are common in Asia. For the third point of view, I examine the possibility of transmitting management philosophies to short-term employees. Japan is an internal labor market with many long-term employees, and a structure has been created that is premised on instilling management philosophies into these employees over a long period of time. It was thought that different trends and adaptations would be observed at overseas branch offices that employ employees who can easily change jobs in an external labor market compared to Japan, where there was an internal labor market and an environment that made it easy to institutionalize management philosophies over long periods. Management philosophies can be thought of as the company’s code of conduct or what the company is aiming for, as in its mission statement, but according to research by Tsunehiko Yui, Jiichi Kitamura, Keiichiro Nakagawa, and others, it also includes value awareness, such as beliefs and social norms (Yui 2006; Kitamura 1980; Nakagawa 1972). Moreover, according to researchers of institutions and organizations such as Philip Selznick, William Richard Scott, Walter W. Powell, and others, time elements affect the sharing and institutionalization of value consciousness between people (Selznick 1949; Scott 2014; Powell and DiMaggio 1991). Therefore, it is difficult to implement a management philosophy using the same methods at an organization where many people will change jobs in a short period of time. I examine how the transmission of management philosophies is carried out in regions with high mobility as well as differences with (and similarities to) Japan. For the fourth point of view, I examine the patterns of local employees expected to understand management philosophies in learning new mindsets (like those found in management philosophies), knowledge, and techniques. In research related to learning, Lave and Wenger (1991) analyze the process in apprentice systems whereby an apprentice, even when not instructed in detail by the master, acquires a skill and eventually grows into a full-fledged master themselves. They state that apprentices witness and absorb the techniques and knowledge of their master by being allowed to observe the decision-making and actions of the master by their side, and they call this state “legitimate peripheral participation” (for instance, being given opportunities as an employee of a company to learn by being around people who are the company’s linchpins as they work). According to these researchers, one cannot learn by watching and absorbing if the techniques and knowledge have been “black-boxed” and if one is placed in a situation where it is not possible to observe, even as a legitimate member participant. This research introduces a situation where a young female apprentice is able to observe the role veteran midwives play when they work in a team of midwives and where this apprentice learns through observation what veteran midwives discuss, their decision-­ making, and their approach when an unexpected situation occurs. The veteran midwives allow a legitimate peripheral participant to observe how they make decisions,

72

M. Fujimoto

what is emphasized, and what is prioritized, while the same participant transitions to full participation when she has internalized this. In the cases I take up here, it was predicted that, similar to this sort of veteran-­ novice relationship, if one observed this sort of situation between a seconded manager and a local employee or a veteran local employee and a new employee, there would be a transfer of the attitudes, social norms, and management philosophy emphasized for the job. In Japan, OJT (on-the-job training) and instruction have been fervently carried out for peripheral participants by full participants as knowledge and techniques are accumulated by organizations, premised on the fact that Japan is an internal labor market. There have also been significant expectations concerning problem discovery, analysis, the ability to generate solutions, and especially “awareness” down to the extremities of the organization. Do local employees also learn the knowledge and techniques related to executing work as legitimate peripheral participants? In the cases below, I indicate the relationship between the seconded managers and local employees of Japanese companies in this sort of situation.

5.3  T  he Case of Matsushita Electric Industrial and Its Chinese Branch Offices1 In this sect. I examine the process of transmitting management philosophies through the case of Matsushita Electric Industrial (now Panasonic; hereafter referred to as Matsushita) and its Chinese branch offices. Matsushita has a history of opening overseas hubs that stretches over more than half a century, especially for its Chinese hubs. The branch office chiefs involved in the company’s establishment in China directly after the implementation of the economic reform policies stated that they faced a number of problems, made decisions without any model to imitate, and overcame difficulties by using Matsushita’s management philosophy as support. The management philosophy for Matsushita is laid out in its mission statement as: “Recognizing our responsibilities as industrialists, we will devote ourselves to the progress and development of society and the well-being of people through our business activities, thereby enhancing the quality of life throughout the world.” The 1  For the case of Matsushita Electric Industrial and the branch office chiefs for the Chinese hubs, with the cooperation of Matsushita’s chief of corporate history, Kiyomu Ennokoshi, we received personal stories of experience from the former branch office chief of Shanghai Matsushita Battery Keizo Takemura, former branch office chief of Beijing Matsushita Precision Capacitor Kuninori Azuma, former branch office chief of Suzhou Matsushita Semiconductor Hidetoshi Tanabe, former branch office chief of Hangzhou Matsushita Home Appliances Seihiro Yoshiwara, former branch office chief of  Dalian Matsushita Communication Seiji Uesugi, former branch office chief of Shenyang Matsushita Battery Shige Kodera, former branch office chief of Tangshan Matsushita Electronics Akira Kobayashi, and  former branch office chief of  the  microwave office business department Atsushi Akita. We  are deeply grateful to  all those who provided this valuable information.

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

73

company’s management philosophy states that one’s first duty, even when developing an overseas business, is to aid in the development of that country and to make others happy. The company’s management philosophy was drilled into local employees (by stating principles in unison, singing corporate songs in unison at morning and evening meetings, etc.) through the use of documents (the mission statement, the seven principles, tenets, etc.) and company songs (the seven principles are incorporated into the song lyrics). However, it was difficult to get local employees to quickly internalize a management philosophy brought from abroad: doing so involved changing the different customs of daily life and accounting for the effects of the socialist system on local employees before conveying the management philosophy. Below, I analyze interview surveys and company documents concerning the question of how the philosophy was reflected in the problems encountered by the various branch office chiefs at the hubs in China established between 1994 and 2002. First, I indicate the differences in the penetration of the philosophy to generations that experienced state-­ managed enterprises and the younger generation; secondly, I present the actions Matsushita took to have local employees understand the required level of quality control, something the company emphasizes. Third, I present a case of the actions that were taken to foster a habit of thinking independently as a “Matsushita person.” Fourth, I consider the difficulty of conveying the management philosophy overseas.

5.3.1  The Systemic Impact of State-Managed Enterprises In Beijing in 1994 people were seeking material wealth, there was rampant money-­ worship, and people were filled with a desire to acquire better conditions faster than other people. Consequently, it was an exceptionally difficult time in which to advocate for altruism, such as by providing things that improve people’s well-being. Opposed to this impetus were the officers who had grown up in China’s top-down educational system and who had transferred from state-managed enterprises to a joint-venture company. They “always waited for orders,” “demanded their vested interests,” and “were not used to delegating authority” all of which necessitated a change of consciousness. The era of state-managed enterprises had left people with the concepts of a “planned economy” and an emphasis on always achieving the production plans. If, under the former system, you were unable to achieve the production plans, your pay was docked; thus, the required quantity was always reached even if it was understood that there were defects or if there was existing stock already. Regardless of whether it was impossible to collect payment due to delays in accounts receivables and the bankruptcy of a client company or whether there were strong sales, it became standard practice to increase the amount of loans. Moreover, because of socialist egalitarianism, there was little difference in the pay levels between employee ranks, and those responsible were lacking in ambition. The seconded managers explained that the objective was not to achieve a certain volume of output, but that it was important to emphasize quality and efficiency so as to

74

M. Fujimoto

e­ mphasize capital. A structure was also created to increase motivation by introducing a system for promotions and promoting pay differences for different roles. In this way, Matsushita had to rid itself of the inertia of the former system, the “common sense” of the state-managed enterprises, before transitioning to its own “common sense” (its business management style).

5.3.2  Trust in the Company’s Own Products There are cases of the local employees trusting the quality of the company’s products that concretely demonstrate the importance of having confidence. The seconded managers made local employees thoroughly aware of the degree to which the quality of products they made differed from the quality in the era of state-managed enterprises at the actual sites. For instance, when it was understood that there was a possibility of a defect arising in the welding machines that had been produced, production was stopped, packaged products in stock were unpacked, and inspections were made of all items. In addition, teams were formed that visited the clients and took countermeasures for those products that had already been delivered. The local employees witnessed for themselves Matsushita’s quality management where thorough measures were taken even if there was just the possibility of an issue and a problem had not yet arisen. In this way, local employees came to value the trust of their customers over increasing sales and production volume and understood the importance of emphasizing quality. Furthermore, they came to have an absolute sense of confidence in the products of their own company.

5.3.3  D  elegating Authority to Local Employees and Fostering Independence The phrase “customers first” is a message that one could say is proffered by every company, but this standard is not clear if it remains abstract. One factory explained “customers first” as never saying “no” to a client’s request. Consequently, the factory indicated specifically how to think and act so as to propose alternatives from the perspective of the client in the event that achieving the client’s request was difficult or how to persuade the relevant company departments to achieve the customer’s request; employees were taught that they should feel that a “yes” carries considerable weight and to also think of the relevant company departments as customers. This branch office, which started operations in 1997, has reared a younger generation in their early 30s that has not been impacted by the state-managed enterprises. For instance, female employees in the personnel development section

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

75

t­ hemselves proposed small group activities to reduce quality loss, guided other local personnel on a specific way forward, and reached the level of being able to conduct a monthly results presentation meeting. Moreover, inexperienced individuals in charge of production voluntarily undertook training in production and the disassembly and repair of equipment in Japan. Subsequently, these employees consistently took part in construction and production starts at the local factory and made significant contributions to reducing the time required for rationalized product development. Furthermore, when all of the procedures for changing to US dollar reporting were delegated to a female employee in the accounting department who was a candidate for assistant manager, she was able to persuade the city government and the relevant departments, including the certified public accountants, and received permission.

5.3.4  Chinese Laws on Labor Contract and High Mobility However, no matter how passionately employees were instructed on quality that puts the customer first or on management philosophy, employees would leave, and this training would not be passed on to the next generation. Under China’s labor contract laws, it is relatively easy for employees to leave a company even during the period of the employment contract, and companies cannot terminate employment without a significant reason. Once the employment contract period has concluded, the company has the right to choose to continue employing an employee. Consequently, it is generally thought that a shorter contract period is also more beneficial for the company. Because of these laws, even if Japanese companies perform Japanese-style personnel training, they have to worry about the tendency for local employees who have been trained to transfer to another company. The personnel who had been trained under Matsushita, which is committed to carrying out human education, had a particularly good reputation, and it was even said that “Matsushita is a human training school.” Despite branch office chiefs personally feeling the loss of those employees they had raised themselves and who then left, the human education involved was interpreted as a contribution to the local community. In this situation, the local employees who sympathized with the self-­ actualization of contributing to society by belonging to Matsushita stayed with the company and demonstrated the ideal of independence mentioned previously. While a reform in consciousness was necessary for local management positions where there had been a mindset of “always waiting for orders,” “arguing for vested interests,” and “dependence” due to the impact of habits from the state-managed enterprise era that the Chinese branch offices had witnessed, it was observed that there was a gradual penetration of Matsushita’s management style among the younger generation, including placing customers first, recognizing the importance of quality, and acting independently.

76

M. Fujimoto

5.4  T  he Case of Matsushita Electric Industrial and Its North American Branch Offices2 Anti-dumping laws were enacted in Europe and the United States because of trade friction in the 1980s, and this put pressure on Japanese manufacturers. Companies needed hubs for local production as a countermeasure, and Matsushita also built hubs in various developed countries. At its hubs in Europe and North America, Matsushita experienced problems different from those in (what were then) developing countries, such as in Southeast Asia and China. These included how to make Americans understand its management philosophy when they were apathetic about the subject and not familiar with the abstract nature and profundity of the philosophy. Branch chiefs also often discussed being worried over the difficulty of communication owing to the cultural gap peculiar to developed countries and the difficulty of conveying the Japanese management style and Matsushita’s management methods. Below I examine the process of interaction with local employees and the barriers that the seconded managers encountered. First, I present differences in “common sense” regarding overtime in Japan and the United States for overtime work performed under the ideal of “customers first,” a major part of the management philosophy. Second, I present the case of Matsushita wishing to promptly carry out quality control, which the company regards as important, but instead responding to the American “common sense” of prioritizing fairness. Third, I indicate how the Japanese management style, which is considered a blue-collar model, was adapted to guide white-collar workers. Fourth, uniformity is often emphasized in conveying Japanese-style management philosophies, and I indicate how the management philosophy was adapted for acceptance in keeping with American values that respect diversity. Fifth, I discuss the importance of the level of the seconded managers in transmitting the management philosophy.

5.4.1  “ Common Sense” About Overtime in Japan and the United States Overtime can occur when it is decided to suddenly increase production to realize the ideal of “customers first” and respond flexibly. Here is an episode that illustrates the difference between Japan and the United States. On one occasion, a customer had a sudden request, and when the branch office chief asked the production manager if it was possible to meet this request, the production manager replied that the parts were there so it was possible; directions were then given for a shipment the following 2  For the  case of  Matsushita Electric and  the  branch office chiefs of  its North American hubs, we  were able to  perform interviews through the  cooperation of  Matsushita’s chief of  corporate history, Kiyomu Ennokoshi, and  former Chicago branch office chief Koichi Takeuchi. We  are deeply grateful for all those who provided this valuable information.

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

77

morning. However, when the branch office chief went to look at the situation after regular working hours, the factory was not in operation and there were no workers. Even the manager had gone home. When the branch office chief scolded the manager the next morning and asked why he had gone home despite having promised to meet the order, the manager said, “We’ve already finished.” Because everyone allocated their evenings to time with their family and to studying at night school, they went home on time and came in early to do the work. In the United States, personal time is prioritized in the evenings, but people do not simply avoid overtime. The workers accepted doing the work in the morning. The local employees, who had no habit of working long hours at night as in Japan, also accepted overtime work for the customer.

5.4.2  The “Common Sense” of Fairness and Rights Even if temporary work becomes necessary in Japan, companies can easily move people around or return individuals to their original section without transferring their pay, but this is difficult in the United States as professional duties and pay have a paired relationship. For instance, when a branch office chief ordered an increase in the number of inspectors to improve quality, the number of inspectors had not increased even after a week. When seconded manager asked about this, the local manager said they were working on it. He stated that the pay for inspectors and assembly line workers differed and, because inspectors had a high rank, an application was requested in order to allocate people to this position for the purposes of fairness; it was then necessary to choose people from the applicants. In a society such as the United States where pay is awarded according to one’s professional duties, one’s occupational abilities are emphasized and it is very difficult to “temporarily change assignments (without changing pay)” as in Japan where the relationship between professional duties and pay is relatively loose. Moreover, when the branch office chief tried to recommend a bottom-up structure, such as a suggestion system, the response was that “we have to employ specialized officials to examine the suggestion system. The company will purchase the ideas produced by the employees, so we have to thoroughly look into if we’re infringing on the rights of employees with new proposals for patent use and make sure that there are no complaints later. That’s why we need a specialist.” When implementing ideas, it is necessary to always indicate their basis and be careful that there is no unfairness; clear differences exist in the Japanese and American mindsets.

78

M. Fujimoto

5.4.3  T  he Importance of Personal Choice and Logical Persuasion Because the United States is a country of rationalism, if something is logical, the local employees will quickly understand it. Consequently, it was easier to convey and have accepted things that were documented, vocalized, or logical rather than abstract. In this sense Matsushita’s management philosophy was clearly stated, easily understood by the local employees, and oriented toward overseas expansion. In daily communication for specific work, one also has to consider personal choice and the preference for logic. For instance, when orders were given by headquarters, a factory in the United States would consider the methodology; however, as it was important to create a situation where choice was involved even if the branch office chief thought plan A was desirable, plans B and C would be prepared even if they were not sufficiently polished, and management could then choose plan A themselves. With regard to work, employees sometimes do not understand, as Japanese people do, communication that includes nuance embedded in the situation, such as “things left unsaid,” “conjecture,” or “taking things with a grain of salt.” For instance, when a branch office chief was giving a certain explanation to the staff, if the chief did not immediately touch on the main topic but gradually narrowed down the discussion from related matters before discussing the essentials in the second half of the conversation, the workers would mistake the first half of the conversation for what the chief wanted to say. This branch office chief stated that “You can’t be indirect or have a long opening. If you don’t genuinely indicate your conclusion first while also being conscious of respecting individuality you won’t be understood.” Workers in the United States are used to a conclusion coming first and the reasons come after. This suggests that if one does not change from the Japanese pattern of stating the conclusion at the end, communication is pointless.

5.4.4  Japanese Uniformity and American Values At the local company to which one branch office chief was transferred, there was no singing the company song in unison or stating the company principles in unison. Because in American culture “our hearts can be one even if we’re different,” there is a distaste for enforced uniformity. Consequently, chiefs are unable to use structures for making employees understand this sort of ideal. However, because there is a culture of “standardization” and keeping one’s home clean in the United States, one could persuade workers by telling them to treat the company like their home. After introducing a structure for inculcating a habit of cleanliness in shared spaces (such as by making workers clean every morning before work, including places other than their desks), quick learners got it in a month. In addition, local employees are not simply economic rationalists motivated to work only by incentives. There are those who are more deeply moved than Japanese people, and if their individuality is

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

79

r­ecognized and they are treated with respect, they will be very motivated. Social rewards, such as awards, were an effective motivator and were very important. There is also a belief peculiar to the United States that “if you work hard you will be rewarded,” and employees demonstrated a proactive stance in improving their skills.

5.4.5  Training of Seconded Managers Branch office chiefs experience not only dilemmas in training local employees but also a lack of training for Japanese seconded managers from Japan. When seconded managers in their 20s arrive, they have yet to complete the training that would just allow them to convey Matsushita’s management philosophy to local employees and how local employees develop is affected by the level of the Japanese seconded managers. In a foreign culture in particular, one has to work not in the Japanese style but by absorbing the values and culture of the foreign workers and translating matters into their culture. One has to respect the style of the other culture. However, as transmitters of the management philosophy, dispatched workers have to play the important role of communicating without changing the management philosophy. Consequently, this was exceptionally difficult work for those with a shallow understanding of the philosophy. The branch office chiefs sometimes carried out simultaneous training in the management philosophy for the local employees and the Japanese seconded managers. In the United States, one sees in the communication process the culture of developed countries, such as the sense of unity within diversity, and others’ pace of life, logic, and documentation; thus, it was necessary to show respect for others without losing the essence of the Matsushita management method. Management, in the sense of management appreciated not only by outside customers but also by local employees, was implemented that recognized respective values and differences for important subjects.

5.5  T  elecommunications Precision Equipment Manufacturing Company B and Its Chinese Branch Offices3 In regions of high mobility, it is common for employees to transfer to more welcoming companies or companies where they can expect further skill improvements. Even if workers are not dissatisfied with their work life at a company and even if 3  In the  case of  Company B, we  were able to  conduct interviews through the  cooperation of  Company B’s Shenzhen Longgang branch office chief Y.S.; department chiefs C.Y., H.Y.,

80

M. Fujimoto

they have a positive relationship with their boss, they may change jobs. The locations where Matsushita had its hubs were regions of high job turnover, and Company B, which I take up in Sect. 5, was also a high mobility region. The survey for Company B was made between 2005 and 2006. Here I take up Company B’s Shenzhen Longgang subsidiary (founded in 2003) and Company B’s Shenzhen Nanling subsidiary (founded in 1994), including interviews with local employees. In the first case, I present how the power of “awareness” for the cultivation of watchful eyes for instruction and quality is transmitted in China. In the second, I present the process of fostering the ability to think for one’s self. The third case examines the elements that form the basis of trust between local employees and bosses. The fourth case shows how bosses must be highly skilled for this reason and how employees are always evaluating their superiors. In the fifth example, I present cases where it is difficult for Japanese performance evaluations, which set forth promotions over a long period of time, to build relationships of trust with Chinese employees. Sixth, I consider the importance of having a level of seconded managers to transmit the management philosophy here as well.

5.5.1  China’s Education and Predictive Capabilities The white-collar local employees (hereafter called the staff) are urban college graduates, and many of those hired are new graduates who have already learned computer operation skills. These staff are also immersed in an environment that supports job transfers, with headhunters, information on the Internet, etc. One of the peculiarities of these graduates is that they have poor planning skills though for college graduates. For these graduates, who were raised in China’s top-down education system, it is difficult to think freely about the future and to not follow set orders. Japanese people are trained to make summer vacation plan charts and similar activities when young; thus, planning is a familiar task, but these graduates had never received any education of this sort. Hearing this, seconded managers decided to begin instruction not with “doing one’s job in a planned manner” but with methods for “creating plans.” After 2–3 years, the staff became able to plan events for themselves, and staff who had reached this level became able to anticipate the future 3 years in advance and act accordingly. There are also situations where it is necessary to make numerous decisions at the production site, and reporting from subordinates is important. This requires “awareness” and “analysis capabilities” from the staff in charge of manufacturing. However, the workers did not initially have these capabilities, so instruction was carried out to give them skills such as “analytic methods for repeatedly asking ‘why’” and “Ho-Ren-So” (a mnemonic acronym often used in Japanese business culture, which and A.H.; the former Shenzhen Nanling branch office chief K.M.; and Nanling branch office former department chief H.O.  We  are deeply grateful for  all those who provided this valuable information.

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

81

has the same pronunciation as the Japanese word for spinach), to convey the importance of reporting, informing, and consulting. Even if the work was described in one line in the manual at the factory in Japan, at the branch offices in China, the explanation had to be three lines and if there was not a more detailed explanation, it would not be understood. It was difficult for workers to acquire predictive capabilities for things in situations where directions were not given. Seconded managers explained the difference in meaning between discovering a defect after a product has been delivered to customers and discovering defects in the factory where they teach the importance of “awareness” to local employees.

5.5.2  The Independence of Local Employees Among the local employees, there are managers who were trained by the seconded managers, but it takes time until they are trained to predict things without directions. During this time the seconded managers witnessed activities where they felt the local employees were acting independently. Local section chiefs hold parties in recognition of the staff’s services in addition to the work report meetings held twice a week. A relaxed atmosphere is created with juice and sweets, and a setting is prepared where the staff can say anything they wish. Each employee contributes a little to the expenses for these meetings, and the section chief covers the remaining costs with his own funds. The staff carries out activities spontaneously so that work can be performed smoothly, and one observes a scene that is the identical to a Japanese boss being considerate to his subordinates. Everyone is motivated to work their hardest together. There is also the possibility that the staff will change jobs to pursue their future, their independence, or a higher position, but it is said that because there is a strong desire for growth, the staff are enthusiastic, and those who are not feel pressure from their coworkers. The local section chiefs request lectures on specialized fields from short-term Japanese seconded managers, and they have learned about quality management methods from seconded managers over the long term. Moreover, because lectures on Japanese are requested from interpreters, everyone is always anxious to improve. In contrast, as an example of local employees not being able to learn, a male graduate of the University of Hong Kong working as a Japanese interpreter at a Japanese trading company stated that “They don’t teach me the details of the work and since it’s ad hoc it’s not fun even if I’m interpreting. I look at recruitment sites online almost every day so that I can change jobs whenever necessary.”

82

M. Fujimoto

5.5.3  S  econded Managers from the Perspective of Local Employees Staffs are sensitive to what they can do to make their own boss happy, and the more clearly the Japanese boss states his or her vision, the easier it is for them to respond. The stance of Japanese bosses is important for local section chiefs in making subordinates understand “quality first.” The staff shares the social norm that quality improvement “should” be more heavily emphasized and instruction by Japanese seconded managers has penetrated into their consciousness. Local employees learn that quality “should be emphasized” from the normal attitudes of their boss. For instance, when the question arises of whether to stop the line for some reason, they become aware that, if the boss decides to stop the line, what appeared to be something small was actually something important. Or if a different problem has occurred and even the company president shows up, everyone learns that this was very important. In contrast, if an employee thinks something is significant but the boss does not show up, there is a high possibility that everyone will think that it was not that important and will stop reporting it. The decision-making and actions of the boss are always in the focus of local employees, and they are continually being judged. As with Matsushita, there were also allusions to the level of seconded managers at Company B. When a seconded manager with little experience has been seconded as a manager to China, the president of the Shenzhen Longgang subsidiary has to train the Japanese employee in addition to providing instruction on the management of the Chinese subsidiary and has to begin by solving more basic problems than the management of Chinese employees. In Japan, even if an exceptionally talented individual is missing, the other people are all highly skilled and can fill in regardless; however, because seconded managers are needed in China, if one does not dispatch a self-aware elite, the local employees will not be trained to be good personnel. The former president and department chiefs of the Shenzhen Nanling subsidiary indicate that because the quality of the seconded managers is reflected in the local employees, if the local employees have not been trained, then the quality of the Japanese seconded managers should also be blamed.

5.5.4  T  he “Common Sense” of Internal and External Labor Markets In Western companies, people are recruited for their professional duties, and it is not the case, as with internal labor markets, that if you work for a company for a long time, you will be promoted. If there are two individuals with careers that match what is needed for a certain post and one of these two is promoted, the other person feels that their abilities were not recognized. Often, people no longer expect another opportunity and quit their job in dissatisfaction that their boss did not choose them. Certain aspects of Japan’s internal labor market style promotion system are difficult

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

83

to understand for those used to the “common sense” of overseas external labor markets. The staff did not understand the Japanese promotion system when they joined the company, but they gradually came to understand it after receiving an explanation. On a company questionnaire, one employee responded, “I understood that, unlike with Western companies, employees have the opportunity to work up from the bottom, be promoted for the first time, and be promoted in the future if they work hard here. The Japanese mindset was refreshing.” At the time of the survey, there were local employees who had been working in management for more than 10 years, and they had gained a deeper understanding of Company B’s policies than Japanese seconded managers with little work experience. In regions of high mobility, there is a low retention rate for local employees, but there were local employees who learned from the attitude of Japanese seconded managers and had a thorough knowledge of the company’s employment views and management philosophy. Because Japanese seconded managers are always exposed to the view of local employees and are respected bosses, Japanese employees were also conscious of the need for diligence.

5.6  A Case in Silicon Valley, North America4 In Sect. 5.6, I examine the case of Silicon Valley in North America through a survey conducted between 2007 and 2010 on the subject of the relationship between professionals in high mobility regions and company management philosophies. Because professionals have knowledge that is not dependent on organizations, have a high commitment to their field of specialization, and do not dislike changing between organizations, they meet Alvin Gouldner’s definition of a cosmopolitan (Gouldner 1957, 1958). This is a region where people move in a way that is more distorted than the image of professionals presented in theories of Western professionals (Fujimoto 2012, 2013, 2015). Below I integrate and present several cases related to relationships with organizations and to attitudes toward efforts in R&D that go beyond the particular organizations of advanced professionals. First, I present the fact that Silicon Valley is a high mobility area, and, second, I consider the state of people with views on employment different from those of the Japanese. Third, I indicate the importance of leaders allocating employees to attractive jobs where the local employees can grow, for the purpose of forming relationships of trust and aiming for mutual understanding. Fourth, examples of management philosophies being understood, even in the short term, are considered in light of the fact that there are those who work for long periods at the same company, even in regions of high mobility. Fifth, I present conflict situations involving local presidents trying to convey American behavioral norms for creating cutting-edge innovations to headquarters. 4  The interviews for this section were made possible through the cooperation of M&A consulting company president S.M., bio-trading firm president H.M., IT company vice-president C.S., F research center (US subsidiary) chief H.M., and parts manufacturing Company S (US subsidiary) CFO M.Y. We are deeply grateful for all those who provided this valuable information.

84

M. Fujimoto

5.6.1  High Mobility Regions Silicon Valley is a region where well-educated science and technology specialists with PhDs and master’s degrees gather. There are those at large corporations who are employed long term, but at many of these companies, there are numbers of short-term employees who leave the company after a few years.5 People leave on their own or at the company’s discretion. For instance, it sometimes happens that a company will eliminate a section to rationalize management and all those employed by the relevant department will be let go.6 Furthermore, it can happen that a venture company stops receiving assistance by the time it is listed on the stock market, causing it to go bankrupt; it is also not rare for those employed to suddenly find themselves unemployed. Consequently, people have the shared experience of employment and organizations occasionally disappearing. Even if an organization changes in anticipation of this risk, there is an emphasis on prevalent technology and career path structures. Consequently, there is a tendency to believing that being employed for a long time on a project that is not advancing not only obstructs your personal improvement but also lowers your external value. In this sort of situation, there are more than a few researchers and engineers who transfer to companies that seem to have a potential for growth.

5.6.2  Views on Employment in Silicon Valley Graduates of Stanford University and MIT compete for superiority in Silicon Valley, and researchers and engineers from around the world are drawn into this excitement. Advanced specialists gather here to make use of their skills as though it were a gold rush. Even now, the holy land of researchers and engineers, such as those from Xerox’s research center, Hewlett-Packard, Apple, Google, and Yahoo, is alive and kicking, and the myth of getting rich quick with a venture company purchased by Google or Apple continues to strengthen this reality. Those in Silicon Valley share a fervent drive to take on research and development, and the fact that the success of a company leads to your own direct economic compensation is very attractive. However, that is not all. There are many motives for autonomous work, such as the possibility of realizing ideas that will have a social impact, social compensation in the form of approval from one’s peers, and obtaining trust that will be useful for 5  This is affected by the fact that there is a time limit for working visas and there are those who are able to transition to green cards with the support of their company. 6  The labor laws in California are strict on employers, and individual employees cannot be fired if the act includes discrimination against minorities, sexual discrimination, or harassment. Even if this is not the intention of the employer, if the employee makes an appeal in court, then the company has to exert considerable effort to prove their innocence. Compared to this, eliminating a department is not something injurious to human rights, and thus it is easy to have such an action recognized.

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

85

one’s network in the future. High-level researchers and engineers are recognized by those around them and receive inquiries from a number of different companies. Mid-level researchers and engineers experience joy in learning new work tied to skill improvement by cooperating with high-level researchers and engineers. The researchers and engineers of each level have their own role to play, and they experience cooperation without a thought for food or sleep until the business is a success (and becomes listed on the stock market). There is a cultivation of unity and trust in the technical capabilities and the character of others.

5.6.3  C  onsideration for Appealing Jobs and Research and Development in Regions of High Mobility While managers are worried by the outflow of trained personnel in a situation where job transfers happen frequently, they also learn management methods predicated on the fact that employees will leave after a few years. Even if a positive relationship is formed with one’s subordinates in Silicon Valley, headhunters are always contacting employees and coming to promote job transfers. The F research center, a Japanese company, also experiences anxiety over the mobility of local employees, although there have been examples of the researchers and engineers that they have trained over many years turning down the invitations of headhunters. The chief of the research center cannot give pay raises, but assignments to interesting jobs where subordinates can improve their skills have already been planned, so the chief conveys this and leaves it up to the judgment of the subordinate. The chief always thinks about project mindsets that will enable the growth of his subordinates and states the important role of a leader in creating attractive work. In this case, thoughts of job transfers in subordinates were stifled by trust in a considerate boss and being given an interesting job where improvements in one’s abilities could be expected. In addition, Company S, also a Japanese company, explains to its mid-level researchers and engineers that they are not cogs in a machine, but have attractive jobs on their career path where they are also allowed to experience management. Employee benefits are also a perk, but an organization’s cohesion is determined in part by whether it can provide opportunities for skill improvement and experiences that employees can use on their career path. When employees change jobs in Silicon Valley, their previous boss usually writes a reference for his or her subordinate for the next place of employment. If the employee did a poor job in their last position, they will not be able to get a good reference, and if the company gives its employees an interesting work environment, a former employee who has changed jobs may introduce their former workplace to their friends. If the two parties are able to work with a positive relationship on both sides, this functions as trust in the constrained region of Silicon Valley. While one would expect it to be difficult to embrace people in an organization here, in fact a network is slowly formed even after an employee leaves the organization.

86

M. Fujimoto

5.6.4  Mobility and Mission Statements Even for IT companies, where there is a high level of mobility, there were also companies, such as the former Hewlett-Packard7 and Sun Microsystems,8 where it was customary for employees to be employed over a long period under a relationship of trust between the company and the employee. Occasionally, there are behavioral norms that are emphasized over profit, such as with companies managed under the ideal of “Don’t Be Evil,” as with Google, or the corporate culture of Apple where creativity is always being sought. However, apart from the beliefs of managers, many employees are interested in intellectual stimulation and improving their specialty; they often have an archetypal professional orientation where they form utilitarian commitments to organizations that they use as tools for the achievement of personal goals. Consequently, understanding and sharing the management philosophy of a single company where such a philosophy is drilled into the individual and developed over a long period of time is very difficult in Silicon Valley. In this situation, professionals throughout the region share “trust and attitudes toward their jobs” and “expect compensation for success”; the more advanced they are, the higher their level of autonomy. However, many of the mid-level engineers and the positions below them, where the job it is to assist, are strongly motivated by economic compensation. Managers first clarify the mission that is demanded of employees, and it is important to break this down into strategy and tactics. A job description is presented to engineers and contracts are signed. In the event that a company can only obtain low-performing personnel, managers will be questioned about their management capabilities. Japanese companies in Silicon Valley, where cutting-edge research is carried out, also have the role of conveying cutting-edge information from the relevant fields back to Japan. As part of the local institution, the ways of thinking and behavioral norms trusted here have taken root in the people who engage in research and development in an environment with networks that go beyond individual organizations, as in Silicon Valley. It is important to quickly grasp the currents of new technology and gather together trustworthy, superior personnel in order to succeed in research and development. The open system in Silicon Valley that provides appealing jobs and speed requires business management characterized by a deep knowledge of the particularities of cosmopolitan professionals who have a high commitment to professionalism and who are not focused on organizations. Japanese companies in Silicon Valley are interfacing with their headquarters in Japan as they adapt to an institution conforming to R&D here. In regions of high mobility, there are managers who worry about the outflow of researchers and engineers, but the networks that researchers and engineers possess 7  The company is currently being restructured following management difficulties, and long-term employment is no longer guaranteed as before. 8  The company has now been acquired by another company, and it is unclear whether the culture of long-term employment still exists.

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

87

have functioned to procure new personnel. The ethos of research and development, information-sharing norms, and the aspiration for a job where one can create added value are shared by people across organizations throughout this narrow region, and these values have been institutionalized. Mission statements are also understood by short-term employees, but as there is often a utilitarian commitment to organizations, it is believed that it is easier to get one’s management philosophy across in organizations with long-term employment.

5.7  Conclusion 5.7.1  Summary This section compares and examines the interactions between dispatch employees and local employees at Japanese companies from four points of view. First, in analysis focused on the educational particularities of local employees, it was made clear that middle-aged employees who have experienced the former system (the system in the era of state-managed enterprises and Chinese education) were affected by the “common sense” of previous organizations: this made it difficult for them to understand Matsushita’s work views and management philosophy, while young local employees recruited after graduation were not affected by the inertia of the former system and accepted these concepts without resistance. Second, differences arising from the work particularities of local employees, work views, and management philosophy were conveyed to white-collar local employees in Matsushita’s US branch offices using different methods than those for blue-collar employees. There was difficulty in having Japanese “common sense” for late-night overtime accepted in the United States, but overtime was accepted on the principal of “customers first.” People’s ideals and views on work were changed and the new forms practiced. Third, there is the possibility of transmitting management philosophies to short-­ term employees, but in Silicon Valley, where the continuity of one’s career and professionalism are emphasized over adherence to an organization, it seemed that it was difficult to transmit the management philosophy of an organization. However, there are organizations where ideals such as Google’s “Don’t Be Evil” and Apple’s active drive to increase creativity are shared, even at organizations with high turnover. Additionally, there are also organizations where long-term employees are not uncommon, such as at (the former) Hewlett-Packard and Sun Microsystems. Adaptations were observed at Japanese companies for sharing management philosophies with short-term employees in an external labor market. In Silicon Valley, information-sharing norms and attitudes toward networking and work that are shared in the region go beyond specific organizations: it was shown that providing attractive work to employees increases organizational commitment. In high mobility regions, such as Chinese factories and the R&D departments of Silicon Valley, one needs management that can handle turnover in active members, and while there

88

M. Fujimoto

was a trend toward codifying knowledge, there were also expectations that local employees would learn not only codified knowledge but also an attitude of working hard on the job. In Silicon Valley, an adaptation to network style management premised on high mobility was observed. Among those in charge of factories, people that expected to become core personnel had a tendency to change jobs, but a certain number of retained personnel were trained to be managers, and they began to function as transmitters of the management philosophy, including value consciousness. These things suggest that while it is easy to convey an organizational management philosophy over a long period of time, it can also be understood in the short term. The fourth point concerns the training of legitimate peripheral participants and full participants. The level of the Japanese seconded managers and the level of understanding of the management philosophy are important elements in every region. Understanding company policy was inculcated in local employees through the words, decision-making, and behavior of the seconded managers. Opportunities to gain a deeper understanding of the job provided people’s work motivation. In this case as well, in the process of executing work, there is decision-making by many bosses; knowledge and technical elements, such as work order, as well as aspects of the management philosophy, such as the social and behavioral norms emphasized, are accumulated in the legitimate peripheral participant. If the skill level of the seconded manager is low and there is only a shallow understanding of the management philosophy, the local employees will not respect the seconded managers and will not accept his or her leadership. In contrast, if the seconded manager is highly skilled, the local employees will judge him/her as a leader who supports personal growth and will demonstrate the attitudes of active learners. Those local employees who have learned a great deal from the leader will grow into full participants with a higher level of understanding of the management philosophy and how to do the work than the Japanese employees who work in Japan.

5.7.2  T  he Cultivation of Social Humans as Transmitters of the Management Philosophy In the local social environment, the method for passing on Japanese ideals is often changed, but the seconded manager serves as an interface and tries to fuse these ideals with the local institution. Japanese companies emphasize “awareness” (the ability to predict situations/analytic capabilities), and these are abilities that are often not codified. They imply expectations of more than what is directly connected to work. There are also expectations that emphasizing cleaning in shared spaces outside of one’s work space will allow employees to be able to consider others and not act for particular people; in other words, there is a belief that employees will gain an ability to imagine a “society” that cannot be understood directly. There are

5  Transmission of Management Philosophy: Beyond the Differences in Customs…

89

many companies who proffer the ideal of “customers first,” but one must cultivate “social humans” with a sense of the commons to approach this abstract concept.9 Additionally, in the process of cultivating local employees, the seconded managers must also understand the other culture as an international citizen and grow to be able to view society from a broad perspective. The process of carrying out various types of instruction for the local employees awakens the “awareness” of seconded managers toward local norms and local institutions. This mutual “awareness” promotes growth toward being a human who can imaginatively understand others and the factors behind given phenomena. The process of transmitting the management philosophy of a Japanese company includes not only the manifest eufunction (recognized positive effects), the instruction of the local employees, but also the latent eufunction (unrecognized positive effects)––the growth of seconded managers as international citizens with a broad perspective. If local employees internalize the behavioral norms emphasized by the company from the behavior and decision-making of the seconded managers and further higher-order transmission is possible from this interaction, then the local employees will be full participants, and a cycle can be formed where they are the model for the next peripheral participants. When the value consciousness and behavioral norms embedded internally in full participants are shared within an organization, this becomes institutionalized and transmitted to others. There are currently many companies that are transitioning toward international strategies aimed at management with only local employees, and it is important that employees with short-term commitments in external labor markets be trained to move from legitimate peripheral participants to full participants. The repetition of a management philosophy through wording that does not get through to local employees cannot be said to be a successful mode of transmission. However, it is next to impossible to train full participants just with a sense of “awareness,” which is hard to codify. The key to the transmission of management philosophies is the attitude of seconded managers and the question of how to build a structure for retaining local employees who can grow into full participants.

References Fujimoto M (2012) Kō-ryūdōsei shakai ni okeru shūgyō seido to kō-gakurekisha no tenshoku kōdō: beikoku Silicon Valley no filedwork chōsa yori (An employment system and job change of highly educated in high mobility society: a fieldwork survey at Silicon Valley) (in Japanese). Dōshisha Shakaigaku Kenkyū (Doshisa Sociological Research) 16:17–36 Fujimoto M (2013) Kaihōteki shakai kōzō ni okeru tayōna jinteki network no kōsa: beikoku Silicon Valley no fieldwork chōsa yori (Open social structure and the intersection of various 9  However, in the external labor market societies that allocate people to professional duties, the cleaning of shared spaces threatens employment since there is a high probability that it is someone else’s work and that cleaning will steal the work of others. Therefore, in a society with a different structure for work, the method for cultivating “social humans” must also be changed.

90

M. Fujimoto

human networks: the case study of Silicon Valley) (in Japanese). Keizaigaku Ronsō (Economic Treatises) 64(4):147–171 Fujimoto M (2015) Kō-ryūdōsei shakai ni okeru shūgyōsha no soshiki he no chūseishin to goshūsei: beikoku nishikaigan shirikon barē no senmonshoku no tenshoku kōdō kara (Loyalty and reciprocity of professionals in a high mobility society: analysis of job change activities among Silicon Valley professionals) (in Japanese). Soshioroji (Sociology) 60(1):3–21 Gouldner AW (1957) Cosmopolitans and locals: toward an analysis of latent social roles, І. 14. Adm Sci Q 2(3):281–306 Gouldner AW (1958) Cosmopolitans and locals: toward an analysis of latent social roles, II. Adm Sci Q 2(4):444–480 Kitamura J (1980) Keieirinen to rōdō ishiki: doitsu kirisutokyō shakai kaikaku shi (Management philosophies and labor consciousness: a history of Christian social reformation in Germany) (in Japanese). Shinhyōron Publishing, Tokyo Lave J, Wenger E (1991) Situated learning: legitimate peripheral participation. Cambridge university press, New York Nakagawa K (ed) (1972) Keiei Rinen: gendai keieigaku zenshū dai 3 kan (Management philosophy: complete works on modern management theory Vol. 3) (in Japanese). Diamond Co, Tokyo Powell WW, DiMaggio PJ (eds) (1991) The new institutionalism in organizational analysis. University of Chicago Press, Chicago Scott WR (2014) Institutions and organizations: ideas, interests, and identities, 4th edn. Sage, Thousand Oaks Selznick P (1949) TVA and the grass roots: a study in the sociology of formal organization. University of California Press, Berkeley Yui T (2006) Zaikaijin to nihonteki keiei no rinen (Business leaders and their ideology of Japanese management) (in Japanese). Bunkyō gakuin daigaku keiei ronshū (Business Review, Faculty of Business Administration, Bunkyo Gakuin University) 16(1):7–25

Chapter 6

The Philosophy of the Yakult Group and Its Propagator, the Yakult Lady Akiko Okuno

Abstract  Yakult, a lactic acid beverage drink, and the Yakult Lady, who delivers it to customers, are not only the sellers but also the propagators of the company philosophy. In this article, we describe Shirota-ism and the Yakult Lady Dealer System. Shirota-ism is the business philosophy of the Yakult Group and comprises three ideas, namely, “preventive medicine,” “a healthy intestinal tract leads to a long life,” and “a price anyone can afford.” The Yakult Lady Dealer System is a unique sales system used by the company. Most of the dealers are married housewives, and they deliver the products directly to their customers’ homes. This system has been introduced not only in Japan but also in other countries where Yakult is available. The role of the Yakult Lady is both to deliver the products and to propagate Shirota-ism through conversations with their customers. Based on the case studies of two sales companies, the article discusses that the role of the Yakult Lady, who originally simply sold products in the early days, is changing to one that embodies the philosophy of the foundation of Yakult, which contributes to people’s health.

6.1  Introduction Yakult, a lactic acid beverage drink, and the Yakult Lady, who delivers it to customers, are widely known world over as well as in Japan.1 This article suggests that the Yakult Lady, who delivers the lactobacillus beverage Yakult to customers, is also a

1  The Yakult Lady is also called Yakult Staff by some sales companies. They were initially referred to as Yakult Obasan (Mrs. Yakult) when lady dealers were introduced but began to be called “Yakult Lady” from around 1983. “Yakult Lady” became a universal name in nearly all sales companies in 1994. Afterward, according to my survey, there was a tendency to change the name “Yakult Lady” to “Yakult Staff” for a while, but with time, the “Yakult Lady” made a comeback

A. Okuno (*) Faculty of Business Administration, Konan University, Kobe, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_6

91

92

A. Okuno

Fig. 6.1  Shirota-ism, the business philosophy of Yakult (Reproduced from Yakult Company Profile 2018–2019)

propagator who delivers the Yakult Group’s philosophy of Shirota-ism to its customers through their products.2 According to The Company History of Yakult Honsha Co., Ltd., the “Yakult Lady Dealer System, which is said to be a very unique and unprecedented sales organization system in the world, began with the sublime mission to deliver Yakult, an embodiment of Shirota-ism, in the best condition in order to protect customers’ health in any place on any day.”3 The Yakult Lady Dealer System in which Yakult Ladies deliver products to their customers’ homes has been introduced not only in Japan but also in other countries where Yakult is available, such as China, India, Brazil, and so on. In these countries, the role of the Yakult Lady is not only to deliver products but also to propagate Shirota-ism through conversations with customers. This article examines the transformation of the Yakult Lady’s role and position from the perspective of the penetration of business philosophy.

6.2  T  he History and Business Philosophy of the Yakult Group The Yakult Group has a business philosophy called Shirota-ism (Fig. 6.1). Shirota refers to Minoru Shirota, the founder of Yakult. He was born in Iida City, Nagano Prefecture, in April 1899. His family was wealthy. However, in the poor rural areas around him, he often witnessed children from poor families dying of malnutrition. and became firmly established. The sales companies of Kobe Yakult and Hyogo Yakult, in which I conducted hearing surveys, use the name Yakult Staff. Since Yakult Honsha currently use Yakult Lady, this article refers to them in the same way. Even in the description on the sales companies that use Yakult Staff, this article applies the word Yakult Lady to them. However, this article does not deal with the “Yakult Beauty” who is engaged in the sales of cosmetic products. 2  In this article, “Yakult Group” is used as a collective name for all organizations and people involved in the Yakult business, such as Yakult Honsha Co., Ltd., sales companies, and the Yakult Lady. 3  Yakult Honsha Shashi Hensan Iinkai (2014b), p. 126.

6  The Philosophy of the Yakult Group and Its Propagator, the Yakult Lady

93

In 1921, Shirota began to study further in the medical school at Kyoto University. He gradually began advocating preventive medicine that was intended to prevent disease before it happened, rather than therapeutic medicine to cure the disease after it struck. Shirota engaged in research on lactic acid bacteria that adjusts the intestinal condition with the aim of identifying a specific for preventive medicine. In 1930, he succeeded in culturing lactic acid bacteria and ensuring that it reached the human intestine alive. He named it the Shirota Lactobacillus casei (Lactobacillus casei strain Shirota). Yakult, a lactic acid bacteria beverage, is a probiotic milk beverage fermented with the Lactobacillus casei Shirota. In 1935, with the aim of “Contributing to the health of people through the spread of lactic acid bacteria drinks,” Shirota founded Yakult Research Institute in Fukuoka City with Mr. Noboru Nagamatsu and began selling the lactobacillus beverage, Yakult. This was the beginning of Yakult Group. Preventive medicine is inherent in Shirota-ism. Kencho-chojyu (literally meaning healthy stomach and long life) is a word that Shirota made up and began to demonstrate after the war. The intestine plays an important role of ingesting the nutrients necessary for living. Thus, the word came to mean keeping the intestines healthy as a secret to longevity. He sought to price the product in such a way that everyone could access it and began by setting the price of a 30 ml bottle at 5 yen per piece with reference to the price of a postcard at the time of the establishment of the Yakult Honsha Co., Ltd., in 1955.4 In addition to this Shirota-ism, there are phrases and ideas that are uniquely used and cherished among people engaged in the Yakult business. One of them is “popularization,” which refers to sales and sales activities. Those engaged in the Yakult business aimed not only at selling the beverage but also at spreading healthy lifestyle habits by enjoining people to improve their bowel movements by ingesting the lactic acid bacteria beverage. After its founding, the sales bases that were established in various places in the 1940s were not named as dealers, but rather collectively as the “Shirota Protective Bacterial Dissemination Association.” As well as the word “popularization,” otodoke (“delivery”) is also a unique word used in the Yakult business. Otodoke refers to Yakult Ladies delivering products to their customers’ homes. Instead of using the word haitatsu which means simply a deliverer of products, Yakult Group uses the word otodoke which includes both the delivery of the products and direct heartwarming communication. Even though direct sales through retail stores and vending machines are on the rise, it is the use of otodoke by the Yakult Ladies that continues to remain the backbone of the Yakult business. From the very beginning of their business, Yakult emphasized on the home delivery system that delivers the product directly to consumers, because “a home delivery system can check everything about the product, the kinds of customers handled, and the customers to whom the delivery was made.”5 The role of the Yakult

 Yakult Honsha Shashi Hensan Iinkai (2014a), p.164.  Yakult Honsha Shashi Hensan Iinkai (2014a), p.21.

4 5

94

A. Okuno

Lady who carries out otodoke has become more important in light of the mission of contributing to the health of their customers. This point will be discussed in Sect. 6.4.

6.3  The Birth of the Yakult Lady and the Sales Mechanism 6.3.1  The Birth of the Yakult Lady Dealer System The mechanism by which the Yakult Lady, who is mostly a housewife, delivers the Yakult lactobacillus beverages to customers is called the “Yakult Lady Dealer System.” According to the company history, the system began to operate in Takamatsu in 1954. Kazuhiro Noda, who was helping his father’s job selling Yakult in Hiroshima, became independent and decided to sell the product in Takamatsu. At that time, he explained why he willingly hired housewives in the following words: “As I am a student, it is difficult for me to hire men in their 30s and 40s. Since it is easier to enter the home through the kitchen, it is better to employ housewives.”6 At about the same time, Eiichi Odagiri of Ise Yakult sales of Mie was faced with a problem. The target area of the specialized dealer was as large as about 10,000 people, and his hands were full just by delivering the product to each customer. As a result, they were unable to acquire new customers. Therefore, they doubled the number of specialized dealers from 50 stores to 100 stores and reduced the target population to about 6000 people. At first, even though the sales increased due to the achievement of new customer acquisition, it became saturated immediately. The model was not successful if the dealer’s district was too large or too small. In order to deal with this problem, he called upon housewives hoping that “they would be able to work steadfastly, patiently, seriously, and carefully.” Presumably housewives could work 4  h a day, and accordingly he divided the visiting areas into smaller parts. When he asked the housewives that he knew to carry out this plan because they were familiar with the residents in their areas, the otodoke (delivery) was a great success. People wanted to be dealers themselves and wanted to become Yakult Ladies. They appeared one after another and increasingly switched from specialty male retailers to lady dealers. This took place in around 1960. Looking at this, the sales divisions at Nagoya Yakult and Ishikawa Yakult also switched from a male-centered specialty dealer to a lady dealer, and the institutionalization of this sales approach progressed gradually. In 1963, the “Yakult Lady Dealer System” began as a policy for the headquarters alone. From the description of the company history, I will examine the reasons for actively introducing housewives into the sales system. The company history indicates the following reasons for this: 1) At Takamatsu Yakult, where the introduction of housewife as sales staff began, it was believed that women were easier to manage than older men because the manager was young and had just left college. 2) They  Yakult Honsha Shashi Hensan Iinkai (2014a), p.153.

6

6  The Philosophy of the Yakult Group and Its Propagator, the Yakult Lady

95

could be engaged in the task because of their steadfastness, patience, seriousness, and carefulness. 3) They enabled customers to look at health-conscious customers through their eyes. 4) A housewife who could easily come in and go out of the customer’s house from the back door was suitable as Yakult was a refrigerated product.7 In addition to these, it can also be added that in the early 1960s, women’s labor participation progressed because of the labor shortage accompanying the period of rapid economic growth. It goes without saying that the fact that women’s wages were lower than that of men was also a part of the reason why more women began to be hired. Yakult’s history describes the results of the survey conducted targeting the Yakult Ladies in 1969. According to the survey, “the average Yakult lady at that time had two hours and twenty minutes of actual working hours, 37 years of age, delivered 193 bottles, 1,360 customers in charge, and 15% of penetration rate. Nearly 70% of people believed that their work was rewarding and socially meaningful and would be a good income source.”8 As of March 2018, there were 34,888 Yakult Ladies in Japan.9

6.3.2  The Yakult Lady Dealer System I will briefly describe the Yakult Lady Dealer System in this subsection. The details are different for each dealer, but the basic duties and daily procedures are the same. Yakult Ladies work at the delivery center from 8:00 am to 9:00 am every weekday and prepare for their day ahead. They depart from the delivery center at 9:00 am and deliver Yakult products to their customers. Earlier, they used to deliver the products rather early in the morning every day, but now, they have a customer route to deliver on each day of the week. Thus, they deliver the items for 1 week together, once a week. They either finish their home deliveries or take a break at around noon and go back to the delivery center to have lunch. After that, if they still have products to deliver, they continue and then confirm the total number of sales on that day, prepare for the next day’s home delivery, and finish work from between 2:30 pm and around 3:00 pm. Morning or lunch meetings are held. The Yakult Lady is an independent business owner who enters into a consignment sales contract with the company. Bicycles, motorized tricycles, etc. are used to commute while delivering the products, and they are taken under lease contracts with the company. Since it is not an employment, they do not have any social security. However, a mutual aid system called the Dojin Association guarantees 7  Yakult Honsha Shashi Hensan Iinkai (2014a), p. 154. Although the ideas that “women are easy to manage” or that “(women are) steadfast, patient, serious and careful ” cannot be entirely accepted as the norm because it stems from a bias, this article follows this line of thinking by drawing upon the company history. 8  Yakult Honsha Shashi Hensan Iinkai (2014a), p.138. 9  Yakult Honsha Koho-shitsu (2018).

96

A. Okuno

c­ ompensation for severe injuries and diseases during work hours and arranges for their retirement payment system, among other things. Since their income is proportional to their sales, it will decrease if their sales are low. Many sales companies set the monthly income estimate at 80,000 yen. For example, Nara Yakult guarantees a monthly income of 80,000 yen in the first 3 months after they start working. It is noteworthy that this amount means an annual income of 960,000 yen, that is to say, barely less than the threshold of 1,030,000 yen that qualifies them as dependents (e.g., if their income is 90,000 yen a month, they will make 1,080,000 yen a year and will be ineligible for dependent deduction). In the Yakult Lady Dealer System, many of the staff often aim to work while keeping their dependent status as housewives at least when they begin working. However, sales companies always aim at making a large volume of sales, regardless of their workers’ dependent status. It goes without saying that the company prefers that the excellent Yakult Ladies who are educated through the training program continue to work for a long time. Therefore, the companies prepare a career path for the Yakult Ladies by appointing them as regular employees after they start on a consignment sale contract.

6.3.3  The Spread of the Yakult Lady Overseas Yakult Group’s overseas expansion began in Taiwan in 1964. In 2017, there are 28 establishments and 1 laboratory around the world. Yakult lactobacillus drinks are manufactured and sold in 37 countries and regions. As of December 2017, a total of 46,559 women work as Yakult Ladies. According to Kawabata (2009), Yakult  Group’s overseas expansion can be divided into three stages. The first stage extended from 1964 to 1990 when it first expanded overseas to Taiwan and then into other parts of Asia such as Hong Kong (1969), Thailand (1971), and South Korea (1971) and later also into Latin America, with Brazil (1968). These areas had many hygiene problems. Thus, the philosophy of Yakult, which stands for preventive medicine, was accepted and demanded. One key resource person was selected to become the partner in the destination country, where a joint venture company for Yakult Group was established. Both the products and the Yakult Lady delivery system became popular in these countries. Since the sales network of the cold chain was not used and the traditional selling method through people continued to operate, the phenomenon of the Yakult Lady visiting the homes of her customers on a daily basis to hand over the product began to spread. The introduction of the Yakult Lady also contributed to the expansion of employment opportunities for women in these countries. The 9 years between 1991 and 2000 marked the second stage of Yakult Group’s overseas expansion. They expanded into Europe, particularly into countries such as the Netherlands (1994), Belgium (1995), the UK (1996), and Germany (1996). The Yakult Lady Dealer System based on a consignment sales contract was not permitted by law in force in Europe at the time. Thus, they were forced to develop another sales route. For the first time, Yakult Group faced strong competition from Danone,

6  The Philosophy of the Yakult Group and Its Propagator, the Yakult Lady

97

a company in France. Therefore, they tried, for the first time, to sell through a retail channel such as supermarkets and made use of advertisements, the mass media, and face-to-face communication through demonstrations at stores. From 2001 to 2010, which is the third phase, Yakult Group expanded all over the world, in countries such as Malaysia (2004), Shanghai (2005), Australia (same), Vietnam (2007), and Italy (2007). China expanded its base with Beijing (2006), Shanghai (2007), Taianjin (2011), and Wuxi (2015) and now contributes significantly to the increase in the sales performance of the company.10 The Yakult Lady Dealer System has been introduced in many of these countries. However, although the basic mechanism is the same, there are many differences such as income, motivation to work, form of employment, cycle of home delivery, vehicles used for home delivery, collecting methods, clothes, methods of communication with customers, nicknames, etc. This is because the system is influenced by the local culture and customs, the employment environment, the mechanism of distribution of goods, etc. of each individual country. As mentioned earlier, the Yakult Lady could not be developed in Europe due to legal constraints. In Hong Kong, because skyscrapers make it difficult to deliver products at home, as doing so may result in deliverers suffering from knee pain, store sales were preferred more than the Yakult Lady Dealer System. From my interview survey of Shanghai Yakult staff, I gathered that because visiting sales are prohibited by law in Shanghai, they have a tasting event in collective housing areas and visit the individual homes after receiving subscription.11 It will be interesting for future research on the Yakult Lady Dealer System to focus on clarifying the differences between the Yakult Ladies in each country, with a close examination of how the system is affected by local culture, the employment environment, and the mechanism of the distribution of goods, among other things.

6.4  The Changing Position of the Yakult Lady In this section, I will advance the discussion based on the information I gathered during my interview surveys of two Yakult sales companies.12 Each sales company, despite being based on Shirota-ism, has its own business philosophy. This article focuses on the Kobe Yakult Sales Company (hereinafter referred to as Kobe Yakult)

 According to the company official HP, Yakult Honsha’s sales result in 2017 showed a 1.9% increase, to 189.2 billion yen, when compared with the previous fiscal year, while the Asia and Oceania regions saw a large growth in sales, by 17.8%, or 109.8 billion yen. 11  A interview survey to Shanghai Yakult was conducted on March 10, 2015. 12  Details of each interview survey are as follows: Kobe Yakult with Mr. Seijuro Tanigawa, President and CEO, for about 1 hour and 30 minutes on May 19, 2015, and Hyogo Yakult with Mr. Yasuhisa Abe, President and CEO, and three others for about 4 h on May 23, 2015. The case study is also based on internal materials obtained at the time of the interview surveys and the responses received to the questions asked via follow-up emails. 10

98

A. Okuno

and Hyogo Yakult Sales Company (hereinafter referred to as Hyogo Yakult), which were surveyed by the author. It does not apply to other Yakult sales companies and the Yakult Lady Dealer System all over the world.

6.4.1  F  reeing Themselves from Being the Seller: The Case of Kobe Yakult The Yakult Lady’s job is to sell the lactobacillus drink, Yakult. However, she has also been expected to play additional roles based on the company philosophy, since the company’s foundation – which is to preserve customers’ health and maintain customers’ healthy lifestyle habits  – has been sought by its customer base. This trend is becoming more prominent due to external circumstances such as changes in the market, society’s declining birthrates, rapidly aging population, and the rise in health consciousness. The article examines this phenomenon by evaluating the case of Kobe Yakult. The work of a door-to-door salesperson is not easy. There are few people who open their doors to salespersons when they hear the doorbell ring and still fewer who listen to the salesperson. There are only a few who actually decide to make a purchase. Ten years ago, in Kobe Yakult, the Yakult Lady was also given the task of visiting homes that had not planned to purchase the products and was asked to encourage them to do so. The Yakult Lady had to do this difficult job and repeat her visits despite rarely selling any products. Kobe Yakult worked on implementing major reform in its system. They declared that “All Yakult Ladies should not sell the products!” Mr. Seijuro Tanigawa, the President and CEO of Kobe Yakult Sales Company, mentioned: First of all, we have to understand that if the customers cannot continue to purchase our products, it means that they cannot understand the real benefits of Yakult. So, we do not have to develop new customers, but rather, we just have to try to convey the goodness of Yakult so that the existing customers can continue drinking the product. This means that we have to convey the value of the products and not merely sell them. In order to do that, we have to do our research, one more time. We began with our research around nine years ago.

As a result of not acquiring new customers and removing customers who purchased less frequently from their existing list, the number of customers eventually decreased to about half. Naturally, it was predicted that their sales would decrease. In the first year since they started implementing this reform, the sales decreased slightly, but they saw a steady rise starting the following year. This was because the existing customers had begun purchasing more of the product after they understood the benefits of the products and recognized that they were useful for their health. The customers also empathized with the Yakult Lady who worked in good faith to deliver both the product and the philosophy, Shirota-ism. Although the number of customers decreased, support from the existing customers increased.

6  The Philosophy of the Yakult Group and Its Propagator, the Yakult Lady

99

Since a certain percentage of the sales becomes the Yakult Lady’s income, a reduction in the sales meant a reducing reduction in their income as well. The extreme message of the reform, “do not try to sell goods to customers,” expected a strong resistance from Yakult Lady. Therefore, when the reform began, the company promised that when the Yakult Ladies’ incomes fell below the previous year’s amount, the company would bear the difference. They gathered all the Yakult Ladies at the sales office and explained the transformation of the management as well as the reform in the company’s processes and strongly urged them to trust the company. The President and CEO of Kobe Yakult Sales Company mentioned: I told them: As I will guarantee the same income as last year, please do not try to sell goods to customers. Let us free all of you from just being the sellers. If we are not endorsed by customers now, let us do something that will be supported. Well, then, how are we going to do that? Let us think from the customers’ position and offer them what they want. Let us do our research not only on Yakult but also on things that are more useful and beneficial for customers’ health.

“Freeing themselves from being the seller.” This is what Mr. Tanigawa strongly advocated and continues to advocate from that time to the present. Kobe Yakult’s goal is to make the Yakult Lady a person who is helpful to her customers and thinks about the health of her customers, the area, and the society, rather than just acting as a seller of a lactobacillus beverage. Such beliefs, however, were by no means new to the company. It is the company philosophy to serve the people and benefit their health and realize these goals.13 In addition, this ideology has its roots in the philosophy of Minoru Shirota, the founder of the Yakult Group. The health of a customer is related not only to their intestinal health but also to their mental health – particularly as dementia is a problem that an elderly society faces. Health concerns cause various inconveniences in living conditions. In order to realize freeing themselves from the identity of a mere seller, Kobe Yakult worked on many things. First, they carried out training to inculcate their business philosophy thoroughly in their Yakult Ladies. During their training, they went back to Shirota-ism and built on the business philosophy of Kobe Yakult. They also created the Yakult Lady’s individual credo. The Yakult Ladies kept their credos on the back of their name cards, which they always carried on their person. Kobe Yakult also extended the duration of the training from 3 days to 2 weeks and eventually to 1 month. They also shifted the focus of the content of the training from merely mastering the way to sell to including an emphatic focus on manners. After acquiring good manners, the Yakult Ladies gained product knowledge aimed at responding to customers’ questions. They also studied the structure of the body of knowledge that was essential to customer health. To help customers manage their health, Kobe Yakult engaged in various activities. For example, the company gained certification as a private first-aid training  In addition, they set “to make many people healthy as soon as possible by thorough dissemination of Shirota-ism” as “the mission of Kobe Yakult” and “the company that can offer a touching service with hospitality mind that customers appreciate” as “sales to aim for” (Kobe Yakult Hanbai Kabushikigaisha (2015)).

13

100

A. Okuno

organization (FAST), and many Yakult Ladies and employees qualify as FAST citizen life-savers. While visiting elderly solitary households, they prepare themselves to respond appropriately if anything untoward happens. The Yakult Group also implements social contribution activities through its “Visiting Activities of Love” project, where it aims at confirming the safety of the elderly who live alone while delivering the products to them.14 There were cases every year in which the Yakult Ladies from Kobe Yakult encountered some form of an emergency in the solitary households they visited. Another effort on part of Kobe Yakult is responding to dementia. Nearly all Yakult Ladies have been certified as dementia supporters. The employees who acquired qualifications to work as lecturers as part of training courses go on to train other employees and the Yakult Ladies. As the number of elderly customers increases, the Yakult Ladies of Kobe Yakult are required to have the mental capacity to acquire basic knowledge on dementia and to keep up with the changes and troubles encountered by customers and their families. The Yakult Ladies are also actively working to spread the practice of exercises for dementia, called synapsology.15 All Yakult Ladies learn this exercise program and educate their elderly customers about the program. Being a citizen lifesaver, a dementia supporter, and a synapsology practitioner are major qualifications required for a Yakult Lady. What is important to a Yakult Lady as a “seller” who sells and delivers products is not merely acquiring the qualifications themselves but also acquiring the belief and the ability to help the customers’ health as a result. The idea of freeing themselves from being the seller in Mr. Tanigawa’s words presents his strong belief that they are contributing to people’s health rather than merely selling goods.

6.4.2  H  ealth, Benefit, and Hospitality Company: Case of Hyogo Yakult Next, let us study the case of Hyogo Yakult. Hyogo Yakult’s corporate vision is “a health, benefit, and hospitality company.” In 2014, they aimed to permeate this vision further, and in order to do so, they registered their tagline as a trademark.

 These activities are implemented to provide for the safety of the elderly customers they visited and to help communicate with them in cases of emergency. It includes taking actions such as contacting the hospital or relatives to inform them of any anomalies they notice at the time of visit, such as the smell of gas or not hearing back despite being called many times. The visiting activity cooperates with the customers’ resident association, civilian committee members, etc. This practice began in 1972 and continues to be widely practiced in sales companies across the country. 15  The synapsology is an exercise program that is aimed at stimulating brain activity with moderate stimuli to the brain by having people to do “different things at the same time” and “different movements on the left and right,” which is not normally practiced in regular life. This has been developed and spread by Renaissance Co., Ltd., which develops sport club businesses nationwide. 14

6  The Philosophy of the Yakult Group and Its Propagator, the Yakult Lady

101

Hyogo Yakult prioritizes its role of being helpful to the local residents by providing for their health as the core of its business. They believe that the sales of Yakult is a part of the project that aims at providing for the health of the local residents. Hyogo Yakult is engaged in a number of projects with the aim of being beneficial for the health of local residents. The company publishes the “Health, benefit, and hospitality business report” each year. Let us now look at some of the main beneficial and hospitable projects based on this philosophy. Hyogo Yakult’s most significant project is the “Yakult Factory Tour Health Friendship Association.” This is a 1-day program involving a factory tour in which customers and local residents participate. They use a company-owned bus, and the employees themselves drive and escort the participants. The participants pay for lunch and a personal souvenir and are additionally provided with factory tours, bus rides, and gifts from the factory, all free of charge. The Yakult Ladies complete their home deliveries on the previous day and take the day off to join the customers on the tour. They spend a day with their customers who they can otherwise usually speak to only while delivering the products. Further, customers also get the opportunity to get to know the Yakult Lady who delivers the product to them. In some instances, aside from customers, kindergarten students and community groups are also invited to visit the factory. By observing the manufacturing process and watching DVDs on the bus, their understanding of Yakult deepens. After the participants return home, they are likely to tell others about their experience. If they are satisfied, they will also tell others what they learned about Yakult. Participants then become public relations agents of the company. Mr. Yasuhisa Abe, the President and CEO of Hyogo Yakult Sales Company, calls this a “fan activity.” Various health projects are designed to make the local residents fans of Hyogo Yakult. Mr. Abe mentioned: On the day of the tour, Yakult’s benefits spread as expected. Therefore, the tour can convey value and it is a form of communication. I think the hospitality offered on the tour can move customers after all. We started because this is definitely a good way to build fan activities, and we carried it out 293 times last year.

There are other sales companies of Yakult that hold similar factory tours. However, Mr. Abe says that there are no other companies that hold such tours nearly 300 times a year. Hyogo Yakult owns three mini buses for these tours, two of which run almost every day, on weekdays. Hyogo Yakult undertakes a lot of projects for the benefit of the health and beauty needs of its customers, such as the factory tours. Each center holds an interaction event once a year to express its gratitude to its customers and local residents. They have various health classes, workshops, lectures, and visiting lectures. They also actively participate in regional projects such as health fairs and summer festivals and also exhibit panels and stores on health. As described above, Hyogo Yakult defines its own business as supporting the health of customers and local residents and is working diligently to achieve its goals. However, things were different in the beginning. Mr. Abe took over the company as the president in 1995, the year of the Great Hanshin Kobe earthquake. That year, people and businesses suffered great damage. However, in 3  years, the

102

A. Okuno

p­ erformance worsened. Selling products became a top priority in an attempt to escape the poor business situation, somehow. Regardless of their customers’ health conditions, there were times when they prioritized numbers and sales. However, at a certain point in time, the story goes that Mr. Abe changed the company’s policy. The company was founded by Mr. Abe’s father, in 1956. If that founding was the company’s bud, it is only true that company grew to become a fine tree over 50 years. The senior executives and employees who were involved in the management and operation of the company effectively nurtured the fine tree that the company grew to be. However, it was the customer who gave the tree water. Customers valued the tree and helped it grow because it did a lot of good. Mr. Abe, who heard this story around the 50th anniversary of the company’s founding, changed the policy that prioritized sales. By switching gears to support customers’ health management needs, they aimed at acquiring an increasing number of fans for both, the products and the company, and, at the same time, enabling the understanding of and satisfaction from the product by encouraging customers to purchase it. This manifested in the form of activities such as the factory tour as described above, conducting health-related workshops and lecture meetings, and facilitating participation in community activities, among other things. The direct impact of this change for the Yakult Lady was seen in the number of customers she had to deliver products to. One Yakult Lady used to take charge of 200 houses a week, at 40 houses a day. They reduced it to 125–150 houses a week, at 25–30 houses a day. As a result, she spent more time communicating with each customer. As a result, their sales increased. Another result of this change was that the consciousness of the Yakult Lady has also changed. Until that point, the Yakult Lady had had painful experiences such as being refused engagement with her customers or having her customers shut the door on her face when she visited. After this change, the customers began listening to the Yakult Lady carefully after she offered lectures at mini health seminars. The Yakult Lady now talks to her customers and the local residents who participate in the tour in a friendly manner and is appreciated by them. It is said that the Yakult Lady began to work with confidence and pride as a result of such experiences. Since sales was a major priority before, prior to this study, I imagined that the staff competed with each other to make a higher number of sales and that the individual results would be grafted and displayed prominently at the delivery center. However, at all the three centers I visited, I never saw such things. As shown in the examples of Kobe Yakult and Hyogo Yakult, the Yakult Ladies focused on offering their customers advice on health-related issues. They hold events such as factory tours to communicate with their customers on an active and ongoing basis and to promote a trusting relationship. As a result, a larger number of Yakult lactobacillus beverages are sold. The purchase of products based on trust is not a transient purchase, but is rather continuous and long-term one. Customers who became fans of products were able to advertise their preferences to people they were close to, and the number of customers expanded further. As a result, the increasing volume of product sales was a visible outcome that also raised the confidence and pride of the Yakult Ladies. The Yakult Ladies became more enthusiastic about working on cus-

6  The Philosophy of the Yakult Group and Its Propagator, the Yakult Lady

103

tomer health management and building relationships of trust with their customers. This way, a strong cycle was set in motion. Increasing confidence and pride of the Yakult Lady is key to the company. The Yakult Lady’s confidence and pride are deepened by the gratitude and trust they gain from their customers. At the root, however, I believe that systematic training and development are important for a Yakult Lady to receive trust and appreciation. It is impossible to invest in human resources without thinking about the mode of employment.

6.5  Conclusion This article focused on the Yakult Lady, who is involved in the sale of Yakult’s lactobacillus drinks, and also examined the spread of Shirota-ism which is the philosophy of the Yakult Group. Based on the case studies of Kobe Yakult and Hyogo Yakult, this article discussed the role of the Yakult Lady and examined its evolution from simply selling products in the early days to embodying the philosophy of the foundation of Yakult, which contributes to people’s health. The limitations of this study are as follows. First, this study evaluated only two sales companies. Currently, there are 103 Yakult sales companies in Japan, but it is not clear whether the roles and institutional changes in the Yakult Lady described in this article are seen in all of them. It is necessary to expand the survey to other Yakult sales companies to understand this better. Next, a discussion focusing on the product characteristics of the lactobacillus bacteria beverage is also necessary. Products such as Yakult prioritize the preventive function and help individuals avoid getting sick. These products have characteristics that are similar to those of trust goods. Customers purchase Yakult based on the confidence they have in the Yakult Honsha and/or the Yakult Lady that sells them. A change in the position of the lactobacillus drink Yakult for customers, from being a sweet children’s drink to a health drink that prevents illness, is considered to have promoted a change in the role of the Yakult Lady.16 A discussion from this perspective is also necessary. Finally, the Yakult Lady’s Dealer System is said to be a unique sales method deployed all over the world by the company. The role of the Yakult Lady, her employment, and her career management, as discussed in this article, vary depending on the economic, social, and cultural situation in each country. It is important for research to present a comparative description of the Yakult Lady Dealer System as it prevails in different countries.  Previously, the author conducted a study of Saishunkan Co. Ltd., which sells basic cosmetics such as Domohorn Wrinkles and Chinese herbal medicines (Okuno 2008). The company is engaged in the manufacture and sales of cosmetics mainly via mail order and is among the first companies to introduce a toll-free number in Japan. The company has a system of operators called “customer pleasers” who share a rapport with their customers. There are many common points between this system and the Yakult Lady system. Health foods and basic cosmetics, whose effects are unclear after short-term drinking and use, may be closer to trust goods than experienced goods.

16

104

A. Okuno

Acknowledgements  I would like to express my gratitude to Mr. Seijuro Tanigawa, President and CEO of Kobe Yakult Sales Co., Ltd. and Mr. Yasuhisa Abe, President and CEO of Hyogo Yakult Sales Co., Ltd., who cooperated with me when I visited their offices to conduct my surveys. I would like to thank many active Yakult Ladies who participated in my survey. I appreciate the PR departments of these companies and Yakult Honsha Co., Ltd. for significant support in the process of arranging interviews, gathering responses to my questionnaires, and confirming the contents of my draft.

References Hyogo Yakult Hambai Kabushikigaisha (Hyogo Yakult Sales Co., Ltd.) (2015) Kenkō oyakudachi omotenashi jigyō hōkoku-sho (Health, benefit and hospitality business report) (in Japanese). Company internal document 5:1–34 Kawabata Y (2009) Shirota-izumu no kokusai teki hirogari to shimei: Yakult no kokusai jigyō (International spread and mission of Shirota-ism: Yakult’s international business) (in Japanese). Hakuoh Bijinesu Rebyū (Hakuoh Business Review) 18(2):51–65 Kobe Yakult Hambai Kabushikigaisha (Kobe Yakult Sales Co., Ltd.) (2015) Dai 44-kai Kobe Yakult hanbai kabushikigaisha jūji-sha taikai (The 44th Kobe Yakult Sales Co., Ltd. Worker’s conference) (in Japanese) (Company internal document) Okuno A (2008) Hi-meiji tekina rinen no shintō to keishō: Kabushikigaisha Saishunkan Seiyakusho (Penetration and inheritance of non-explicit philosophy: Saishunkan Co., Ltd.). In the Study Group of Inheritance of business philosophy, Sumihara N et al (eds) Keiei Rinen: Keishō to Dempa no Keiei-jinruigaku teki Kenkyū (An administrative anthropological study of inheritance and propagation) (in Japanese). PHP Institute, Kyoto Yakult Honsha Koho-shitsu (Yakult Headquarters Public Relations Department) (2018) Yakult no gaikyō Heisei 30-nen 8-gatsu (Summary of Yakult Heisei 30 August) (Company internal document) (in Japanese). https://www.yakult.co.jp/company/pdf/gaikyo2018.pdf. Yakult Honsha Shashi Hensan Iinkai (Yakult Honsha Co., Ltd. History Compilation Committee) (2014a) Yakult 75-nen-shi-jōkan: sōgyō no atsuki kokoro (Yakult’s seventy-five years’ history volume 1: passion for start of business) (in Japanese). Yakuruto Honsha Co., Ltd, Tokyo Yakult Honsha Shashi Hensan Iinkai (Yakult Honsha Co., Ltd. History Compilation Committee) (2014b) Yakult 75-nen-shi-gekan: probiotics no michi (Yakult’s seventy-five years’ history volume 2: road to probiotics) (in Japanese). Yakuruto Honsha Co., Ltd, Tokyo

Websites Hyogo Yakult Sales Co., Ltd. Official HP. http://www.hyogo-yakult.co.jp/index.php. Accessed 30 Mar 2019 Kobe Yakult Sales Co., Ltd. Official HP. http://www.kobe-yakult.co.jp/. Accessed 30 Mar 2019 Yakult Honsha Official HP. http://www.yakult.co.jp/. Accessed 30 Mar 2019

Chapter 7

A Sociological Approach to Management Philosophy of Chinese Family Businesses in a Transition Period: The Case of Ningbo Fotile Group Mitsuo Kawaguchi

Abstract  As China shifts from a high-growth to a low-growth economy in recent years, management models that provide guidance on ‘how a business can be sustained longer’ are being sought after by many companies. The search for new management models has led to various directions, but one of the most notable directions is an approach towards traditional Chinese philosophies, particularly Confucianism. Some companies have already adopted Confucianism-based management, and the most prominent actor in this trend is the Ningbo Fotile Group. Based on fieldwork and existing literature, this paper discusses the development of a management philosophy based on Confucianism at Fotile and the way how the philosophy is put into practice. The paper then places the case of Fotile within a cultural context that surrounds family businesses in the Chinese society and identifies relevant implications.

7.1  Introduction In recent years, China’s economy, which had continuously grown for a long period of time, has hit the ‘ceiling’, and the overall economy is shifting from high growth to low growth. Amidst numerous cases of corporate crimes, societal interest towards corporate ethics is also on the rise. In this social environment where China is going through a transitional period, many companies search for new management models. In short, while management models that many Chinese companies had previously This paper is part of a joint research with Dr. Dou Xiaojie (Ritsumeikan University) and is a major revision of Kawaguchi (2016). M. Kawaguchi (*) Faculty of Letters, Tezukayama University, Nara, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_7

105

106

M. Kawaguchi

adopted provided guidance on ‘what needs to be done to grow the business’ or ‘how more profit can be created’, new management models sought after in recent years would provide guidance towards ‘how the business can be sustained longer’. The search for new management models leads to various directions,1 but one of the most notable directions is an approach that applies traditional Chinese philosophies, particularly Confucianism. The post-war period was detrimental to the practice of Confucianism as its followers were subjected to extreme political persecution, especially during the Cultural Revolution (1966–1976). The situation started to recover only in the 1980s. People’s interest in Confucianism has flourished in recent years, and its practice is observed in various areas, not just for personal interest but also for education, regional empowerment, international cultural exchange, and corporate management. These developments were encouraged as the reconstruction of ethics and morals has become a pressing social issue to address serious social distortions (i.e. economic discrepancies, greater unemployment, corruption of bureaucrats, corporate crimes, and environmental problems) caused by rapid economic growth, as well as to achieve ‘a harmonious society’. This rising interest in Confucianism in China has also spread to corporate management, and some companies have started to adopt a management style based on Confucianism. The most prominent actor in this trend is the Ningbo Fotile Group. Based on fieldwork and relevant literature, the paper reviews Fotile’s history and discusses the recent developments of Confucianism-based management philosophy and its practices in the company. The paper then contextualizes Fotile’s case within the Chinese society’s culture of family business and analyses relevant implications.

7.2  Fotile’s Development Process 7.2.1  Basic Information Fotile is a private company (unlisted) founded in 1996 by Mao Lixiang (born 1941) and his son Mao Zhongqun (born 1969), whose stocks are mostly owned by the founding Mao family. Fotile had a predecessor (discussed later), and if this is taken into account, the starting point of the Mao family business can be traced as far back

1  Although not examined in this paper, one of these directions is an approach to the so-called Japanese-style management, and currently, the most prominent actor here is Kazuo Inamori (founder of Kyocera Corporation). Many copies of books written by Inamori (translated into Chinese) have been sold, and his lectures in China attract thousands of audience. What is notable is that Chinese interest in Inamori not only concerns his management method as represented by the ‘amoeba management’ but also his management philosophy based on his life experiences. Some of the business owners who are influenced by Inamori’s management philosophy incorporate his ‘great familistic management’ style into their companies and introduce in-house events such as athletic competitions and birthday parties. The author would like to discuss Chinese companies’ approach to ‘Japanese-style management’ on another occasion.

7  A Sociological Approach to Management Philosophy of Chinese Family Businesses…

107

as 1985. Fotile is a company passed on through succession from father to son within the Mao family business. Fotile’s headquarters is located in Ningbo, Zhejiang Province. Ningbo is a place traditionally known for its flourishing entrepreneurial spirit. Several well-known entrepreneurs in Hong Kong and Taiwan are originally from Ningbo. Since its founding, Fotile has specialized in the manufacturing and sale of high-­ end kitchen appliances. Beginning with a kitchen exhaust fan that played a pivotal role during a take-off period for the company, Fotile has thereafter introduced various luxurious kitchen appliances worldwide. Fotile has regarded as its main target the urban wealthy class, who are buyers of luxurious kitchen appliances, and the company has expanded steadily by riding the wave of China’s high-growth economy. Fotile has also prioritized export overseas in recent years, and its market is expanding to Southeast Asia and beyond. Since its founding, Fotile has consistently emphasized research and development, quality management, customer service, intellectual property management, and employee training and has produced great achievements across all areas. Fotile’s annual sales continued to grow consistently since its founding, surpassing 10 billion Chinese yuan (approximately 1.5 billion US dollars) in total across the company group in 2017. Its number of employees has exceeded 18,000 across the entire group at the present time. At Fotile, the real power over management has transitioned from Mao Lixiang to Mao Zhongqun, by the mid-2000s, and Mao Lixiang started to focus his attention on social contribution activities around this period. Business succession in private companies (many of which are family-owned) was a pressing social issue in China at the time,2 and Mao Lixiang has been coordinating with authorities and universities to work on a business aiming to support the business succession process. Specific activities are diverse and include the establishment of a training institute called ‘College for Successor of Family Business’ and a research fund for business succession, sponsorship for international forums, and lectures and writing activities concerned. Moreover, Mao Lixiang actively communicates to the society a business succession model based on his own experience. Today, Fotile is considered as a rare model for success among Chinese family companies that seek guidance on ‘how a business can be sustained longer’. As such, Fotile is often treated as a case study by researchers and economic critics,3 as well as reported by various media.

2  In the mid-2000s, which was a quarter of a century after the beginning of China’s economic reform, many private companies were driven by the need to push business succession to the next generation due to the advancing age of the founding generation. 3  A business case (McFarlan et al. 2013) listed on the Harvard Business School website (https:// www.hbs.edu/) is an example of a publication in English.

108

M. Kawaguchi

7.2.2  Founding of Fotile In the mid-1980s, many private companies sprung across China as the reform and opening-up policy by the Chinese government entered a serious implementation stage. Encouraged by the trend of the times, Mao Lixiang left the local company he was working for as a salesman in 1985 and established a factory that manufactures components for black-and-white TV. This was the starting point for the Mao family business. However, ensuing business activities did not go smoothly. A year after founding the company, the demand for black-and-white TV components plummeted as the government of China adopted a policy that encouraged the manufacturing of color TV.  For this reason, orders from customers and loans from financial institutions stopped at the factory Mao Lixiang owned, forcing him to stall wage payment for a long period of time, while employees left the company one after another. In this time of crisis, it was Zhang Zhaodi, the wife of Mao Lixiang, who played an important role. She left a management position in a stable, state-owned company to join the business started by her husband and took over all the internal management operations. As a result, Mao Lixiang was able to concentrate on outside duties. Mao Lixiang believed that a new ‘power’ product was needed to overcome this crisis and thus travelled throughout China to find demand for new products. Eventually, he found the product that had a great potential, the utility lighter. Afterwards, Mao Lixiang organized the manufacturing system, while gathering capital from family and friends, and developed new sales channels across China. This new business experienced great success in a short period of time, and Mao Lixiang was able to overcome his first crisis. The business expanded further as a result of an effort to develop sales channels overseas and even achieved the largest market share worldwide in the early 1990s. As Mao Lixiang overcame the first crisis and gained some room to breathe, the second crisis was just about to start. The utility lighter had a simple structure to begin with and could be copied easily as it required only basic technology. Ironically, the fact that the business of utility lighters produced large profits became widely known because the media publicised Mao’s success. At this time, Mao Lixiang had no knowledge of intellectual property management and did not have any measures in place against knockoffs. This resulted in many new competitors entering the utility lighter market in China, inviting intense price competition. In 1992, a supplier that has been providing plastic components to Mao Lixiang suddenly stopped the supply and even started to manufacture its own utility lighter, taking nearly half of the market share from him as a result. Thus, Mao Lixiang was forced to face a crisis for the second time. During this second crisis, it was the daughter of Mao Lixiang, Mao Xuefei, who played an important role. Mao Xuefei was originally a nurse, but she quit her stable job alongside her husband, a banker, and set up a new company that supplied plastic components to the utility lighter business her father was running. Around the same time, Mao Lixiang changed the name of his company to Feixiang and fought back.

7  A Sociological Approach to Management Philosophy of Chinese Family Businesses…

109

This support provided by Mao Xuefei and her husband made a significant contribution to the survival of Mao Lixiang’s utility lighter business, but this business never saw a significant upturn as the utility lighter market continued to experience intensified price competition. New businesses continued to enter the utility lighter market, and the unit price of a utility lighter dropped from 1.2 US dollars to only 0.3 US dollars in just a few years. Believing that a new and powerful business is once more necessary, Mao Lixiang focused on the English language that was becoming popular in China at the time and found a business opportunity for commercial goods in an English learning machine. The English learning machine business began in 1993 with a large sum of capital invested into research and development, but the product released to the market did not sell at all, and this new business aimed to resuscitate Mao Lixiang’s company became a big failure. Mao Lixiang was now in his third crisis. During this third crisis, it was the son of Mao Lixiang, Mao Zhongqun, who played an important role. At this time, Mao Zhongqun was working on his master’s degree in electrical engineering at Shanghai Jiao Tong University, one of the major national universities, and was planning to study abroad after completing his degree. Mao Zhongqun, who returned home during the 1994 Chinese New Year, learned for the first time about the critical situation the family business was in and was asked to ‘help the family business instead of studying abroad’ by both of his parents. As he was planning on succeeding to the family business in the future, Mao Zhongqun gave up on studying abroad and returned home immediately after obtaining his master’s degree. However, for the first half year, Mao Zhongqun spent days observing in detail the internal operations of the company without making his intentions clear on whether he would formally become an employee of his father’s company. For Mao Zhongqun, his greatest concern was the difficult problem of how to treat senior executives who have been supporting his father for a long time, and his biggest objective in observing the company’s internal operations was to seek ways to avoid conflict with some of the senior executives who did not welcome his presence. As a result, the conclusion Mao Zhongqun reached was to start his own company, draw in only those senior executives that recognized his presence, and separate senior executives that did not welcome him in the old company. Mao Zhongqun, in making his decision, put forward three proposals to his father, Mao Lixiang, and forced his father to approve all of them. These proposals were to ‘create his own management team’, ‘create new products other than utility lighter’, and ‘set up his company in a new economic development area’. Afterwards, the Maos agreed on the idea of specializing in kitchen appliances following a market survey for the start-up of a new business. As the economic growth in China accelerated in the mid-1990s, the real estate market was also prosperous, and it was clear to everyone that the demand for kitchen appliances would expand further. However, the opinions of father and son clashed upon deciding which specific product to handle. Mao Lixiang pushed for a microwave, while Mao Zhongqun advocated for a kitchen exhaust fan. In the mid-1990s, the microwave had not yet penetrated typical Chinese homes, and domestic manufacturers that were expected to be competitors were very few. Meanwhile, kitchen exhaust fans

110

M. Kawaguchi

were already facing fierce competition in the market where domestic manufacturers alone totalled over 250 companies, with a few leading companies already in mass production (most of which were imitations of foreign products). Due to these differences in the market, everyone thought that choosing to go with a kitchen exhaust fan was quite irrational. However, Mao Zhongqun focused on weaknesses of existing kitchen exhaust fans (knockoffs of overseas products were performing poorly in the kitchens of Chinese homes, which are characterized by abundant oil and smoke) and identified a large business opportunity in this area. Mao Lixiang, who judged that his son’s proposal was reasonable, withdrew his own proposal, dismissed dissenting opinions, and decided to bet the company’s fortune on a kitchen exhaust fan. In spring 1995, Mao Lixiang assigned Mao Zhongqun the research and development duty for a kitchen exhaust fan that was considered as the main product of the new company. Mao Zhongqun, who was entrusted with the future of the Mao family business, worked on his assignment, devoting even his spare time to meet the expectations of his father. After 8 months of trial and error, Mao Zhongqun successfully developed a fan suited to the kitchen environment of Chinese homes. While the development of a new product was in progress, Mao Zhongqun proposed a renewal of the company and brand names in line with the release of a new product to the market. Believing that a feminine name would be suitable for a manufacturer of kitchen appliances, Mao Zhongqun pushed for the name Fangtai, that means Mrs. Fang, as the first candidate. At this time in China, a particular cooking programme on television was greatly popular, and the main personality of the programme was a female celebrity from Hong Kong affectionately known as Fangtai. At first, Mao Lixiang did not agree with the proposed new name for fear of being rejected by the government authority in the application for a name change and for attachment with the company name Feixiang. Mao Zhongqun also refused to bend his opinion, creating a tense atmosphere between father and son, but Zhang Zhaodi mediated between the two, and the name Fangtai (‘Fotile’ in English) was officially adopted as the new name as the father gave in. This episode was widely reported as a ‘loss for the father, win for the son’ by the media, which ultimately served as an advertisement of the new company. On January 1996, Mao Lixiang and Mao Zhongqun founded a new company, Fotile, and assumed the position of chairman and president, respectively. Thus, the first kitchen exhaust fan was introduced to the market along with the new brand name ‘Fotile’. As Mao Zhongqun anticipated, this new product matched the potential demand in the Chinese kitchen appliance market and brought significant profits to Fotile immediately after its founding. At Fotile, the day in which this first kitchen exhaust fan went on sale (18 Jan., 1996) is commemorated as the anniversary for the company’s establishment. With this turnaround, Mao Lixiang survived his third crisis. For foreseeing the potential of a kitchen exhaust fan before anyone else and for leading the new business to success, Mao Zhongqun was recognized as an able successor. With the founding of the new company, Fotile, the utility lighter business that was previously the company’s core business remained with the old company, which

7  A Sociological Approach to Management Philosophy of Chinese Family Businesses…

111

was taken over by Mao Xuefei and her husband. At this time, senior executives who did not show understanding towards Mao Zhongqun also remained with the old company. Mao Lixiang undertook initiatives concerning the treatment of senior executives.

7.2.3  Business Succession As discussed above, Fotile is a company that was founded jointly by the father and son of the Mao family and was brought about through the endowment of the family business from father to son. Mao Lixiang calls the succession plan he developed and practiced as a ‘Three-Three System’. ‘Three-Three’ represents ‘three years multiplied by three’ and consists of ‘three years of taking around’, ‘three years of support’, and ‘three years of watching’. The ‘three years of taking around’ from 1996 to 1998 was a period when Mao Lixiang provided Mao Zhongqun an on-the-job-training opportunity for business management while looking around the company by taking the successor around. Mao Zhongqun, who has a master’s degree in engineering from one of the major national universities, was familiar with the technical side to begin with and was given significant authority with respect to research and development duties even before Fotile was founded. Upon working on the research and development of a new product, Mao Zhongqun took note of the predicaments his father experienced that resulted from neglecting intellectual property management. Thus, he actively applied for and registered patents. For a year after the founding of Fotile, Mao Zhongqun concentrated on research and development but was asked by his father to attend management meetings at the company level in his second year, in part due to the great success of the new product. While Mao Zhongqun was familiar with the technical side, he lacked expertise on the management side and, thus, was given the opportunity for an OJT on business management at the forefront of corporate management. Specifically, Mao Zhongqun learned approaches to business management by his father’s side while receiving his direct guidance. By participating in management meetings, Mao Zhongqun was able to grasp the overall picture of the company and observe various problems with the company’s management structure. The ‘three years of support’ from 1999 to 2001 was a period when management rights were transferred from Mao Lixiang to Mao Zhongqun incrementally while support was provided. In 1999, Mao Zhongqun decided to address the conventional sales structure in which he has noticed some problems through participation in management meetings. Traditionally, every salesperson at Fotile was affiliated with the headquarters while engaged in sales activities throughout China, had significant discretionary power with respect to approaches to sales, and was paid commissions. This method provided great value to talented salespeople, but its management was difficult and inefficient for the headquarters. Therefore, Mao Zhongqun attempted to shift to a

112

M. Kawaguchi

model in which sales subsidiaries are set up in crucial sales regions across China, and every salesperson in the area is affiliated with and managed by the subsidiary. This decision was met with backlash by many salespeople, but the sales reform was implemented in stages with cooperation from his father, thereby significantly improving efficiency. The kitchen exhaust fans by Fotile was popular for its high quality since its launch and ranked second in market share in the country by 1999. However, as was the case with the utility lighter, widespread reporting on the success of Fotile by the media resulted in many knockoffs appearing in the market. Knockoffs were far inferior in terms of quality and hurt the product image of Fotile. This required immediate action to eradicate knockoffs. However, Mao Zhongqun was struggling with sales reform at the time and had no time nor effort to spare on the eradication of knockoffs. For this reason, Mao Lixiang led the initiative and deployed a campaign towards the eradication of knockoffs across China. The campaign was a success as Fotile has learned from failures with the utility lighter business and has accumulated know-how on intellectual property management, and knockoffs were driven out of the market. During this period, Mao Zhongqun also started to develop his own management team seriously. Through headhunting, he built his team with many talented people with experiences in leading companies listed in the Global Fortune 500. Upon building a new management team, Mao Lixiang and Mao Zhongqun set the rule in which blood relatives from the Mao family are not to be assigned to executive positions other than the positions of chairman and president. By avoiding the adverse effects of nepotism through this rule and actively acquiring talents (from outside the company) that can have immediate impact to the company, the second-generation management team was built based on ability rather than on blood relations. The Maos call this process a ‘dilution of the family element’.4 The ‘three years of watching’ from 2002 to 2004 was the period when Mao Lixiang transferred all business management rights to Mao Zhongqun, refrained from interfering as much as possible, and watched from the sidelines. In 2002, Mao Lixiang transferred all of his business management rights to Mao Zhongqun and withdrew from the front line of corporate management. At first, Mao Lixiang reported to work almost every day but gradually reduced the number of days he showed up at the office. By intentionally refraining from showing up at the office, Mao Lixiang sent a message that he ‘feels at ease’ and ‘trusts’ the successor while attempting to let stakeholders within and outside the company know that ‘all real management power has been transferred to Mao Zhongqun’ and that ‘Mao Zhongqun is a capable manager’. During this period, Mao Zhongqun continued to headhunt for talents while also focusing on strengthening the corporate human resource development system. Around this time, Fotile was hiring approximately 100 new college graduates a

4  There was initially a significant backlash from blood relatives upon introducing this rule, but the Maos suppressed the backlash under a strong conviction and pushed forward with the new rule.

7  A Sociological Approach to Management Philosophy of Chinese Family Businesses…

113

year, but such a hiring approach (i.e. hiring new college graduates all at once) was extremely rare in the Chinese market, and thus, the media reported heavily on Fotile. One of the important initiatives at this time was the stipulation of the management philosophy (discussed in the next section), which was also led by Mao Zhongqun. By the last year of the ‘three years of watching’, 2004, the second-generation management team led by Mao Zhongqun was in place to execute the management of Fotile’s business, and Mao Lixiang was able to concentrate on social contribution activities without any sense of reluctance. The succession process at Fotile exhibited specific measures against various problems that occur universally in the succession of family businesses such as failure in communication between different generations, occurrences of unanticipated events that put the company in crisis, conflicts between senior executives and a successor, intervention by the predecessor, and adverse effects of nepotism. As such, Fotile’s case presents many hints as to ‘how a smooth process of business succession can be enabled’. Moreover, this is something that progressed along with a major shift in many areas including technology, organization, management, and the market, providing many hints with respect to ‘how an innovation triggered by succession can be enabled’.

7.3  D  evelopment of a Management Philosophy and Its Practice at Fotile 7.3.1  Stipulation of a Management Philosophy As discussed earlier, once the Maos entered the ‘three years of watching’ phase (2002–2004), the stipulation of a management philosophy started to be undertaken seriously under the leadership of Mao Zhongqun who already had real control over management. This period was a time when China’s economic growth was further accelerating due to its membership with the World Trade Organization (WTO) in 2001, economic profits were prioritized above all else, and ethics and morals tended to be neglected in the social environment. During this time, Mao Zhongqun felt a painful need for a management philosophy that explicitly states management goals as a company and action guidelines for the employees to guide Fotile to a healthy growth. The management philosophy of Fotile that was stipulated under this circumstance consisted of the following mission, vision, and core value. According to an in-house document titled ‘Fotile’s Values (second version)’ (printed in 2012), the mission was to ‘make our home better’, which specifically meant to ‘provide high-quality kitchen products and propose a healthy and eco-­ friendly lifestyle to enable a happy livelihood to millions of people, while i­ mproving

114

M. Kawaguchi

the “great family” that is Fotile to become something even more fantastic through the pursuit of material and spiritual happiness for all employees of Fotile’.5 The vision was ‘to be a world-class company respected by everyone’ and specifically targeted ‘a high-end brand model’, ‘an excellent business management model’, ‘a model of excellent managers respected by employees’, and ‘a corporate model that actively honors the social responsibility of the company and contributes to the progress of the society’.6 The core value was ‘sanpinheyi (the integration of three characters)’, referring to the integration of renpin (character of the people), qipin (character of the company), and chanpin (character of products). The concept of sanpinheyi was developed by Mao Lixiang rather than Mao Zhongqun. Mao Lixiang explained the background as follows: When we founded Fotile in 1996, my son and I thought long and hard about why my company almost went bankrupt three times. As a result, we reached the conclusion that the biggest cause was the lack of our own pinpai (brand). Therefore, we decided to try to create our own pinpai for Fotile. We thought hard about what pinpai is in the first place. Pinpai is, first of all, a good chanpin. Imitating the products of someone else is not enough, and you need to improve your own technology, your chanpin. But chanpin alone is insufficient, and you need to raise the qipin and create a good corporate culture. But chanpin and qipin alone are also insufficient. At the time, there were many insincere entrepreneurs with poor renpin, and many companies went bankrupt. I saw many examples of these failures and painfully felt the need to value the renpin. As you can see, sanpinheyi is something we derived from our everyday management activities. I first raised the idea of sanpinheyi in 1999, and my son added some arrangements to it in 2002.7

As seen in the quote above, sanpinheyi was a concept constructed based on lessons obtained from the life of Mao Lixiang as an entrepreneur, which was far from smooth sailing. The original form of sanpinheyi as presented by Mao Lixiang was worded and ordered differently from its current form and was in the order of chanpin, changpin (character of the factory), and renpin. Upon trying to stipulate the management philosophy that places sanpinheyi at its core value, Mao Zhongqun proposed to his father to change changpin to qipin (because Fotile was no longer a small factory) 5  The mission was changed to ‘for the happiness of hundreds of millions of families’ in 2018. Specifically, the new mission means ‘to provide products and services of the highest quality, create a healthy and eco-friendly lifestyle, communicate the excellent traditional culture of China, bring about better livelihood to hundreds of millions of families, and contribute to the realization of a happy and fulfilling life’. Based on Mao Zhongqun’s lecture titled ‘Fotile and Confucianism’ (9 May 2018, at Doshisha University, Kyoto). 6  The vision was changed to ‘to be a great enterprise’ in 2015. Specifically, the new vision means ‘satisfy the demand of clients as an economic organization and create new demands, and actively fulfil social responsibilities as a social organization; lead people to the right way at all times and promote truth, goodness, and beauty of the human society’. Based on Mao Zhongqun’s lecture titled ‘Fotile and Confucianism’ (9 May 2018, at Doshisha University, Kyoto). 7  Based on an interview with Mao Lixiang (18 Oct 2013, at Fotile’s headquarters).

7  A Sociological Approach to Management Philosophy of Chinese Family Businesses…

115

and rearrange the order to renpin, qipin, and chanpin (because renpin is the most important); both suggestions were readily agreed to by his father. Mao Lixiang noted that ‘the concept of sanpinheyi is something that keeps changing and developing’.8

7.3.2  Introduction of Confucianism For 10 years since the founding of Fotile in 1996, Mao Zhongqun enrolled himself in an EMBA programme to learn the latest business administration theories and methods while also making effort to introduce and practice advanced business management approaches from the United States, Germany, and Japan (e.g. lean product system, kanban system, and 6S management) by headhunting for talents with work experience in global companies. One conclusion that Mao Zhongqun reached through 10 years of exploring was that introducing business management practices from overseas alone is insufficient and that these practices are meaningful only when supported by traditional Chinese philosophy. In this regard, Mao Zhongqun expressed his own thoughts as follows: ‘China is strong on dao (philosophy), while the West has excellent shu (technique). By harmonizing the two, we will seize the shu through the dao’. What does dao mean? Mao Zhongqun believed that, just as there is a rendao (human philosophy) for people, there is also a shangdao (business philosophy) for businesses and sought after the meaning of shangdao in traditional Chinese philosophy, particularly in Confucianism. Through this effort, Mao Zhongqun deepened his understanding of Confucianism and extracted a pair of keywords. The first keyword is yiliheyi (integration of justice and profit). Confucianism does not frown upon the pursuit of profit in and of itself but believes that there are morals that should be honoured. If this point is taken lightly, companies will fail to gain social credibility and will collapse sooner or later. The second is yirenweiben (human-centred). This can be interpreted as facing people with the spirit of ren (benevolence), a virtue considered to be the most important in Confucianism. In a company, this idea should be embodied with respect to a pair of aggregate bodies. One is with respect to customers; the company must create new values and bring happiness to customers. The other is with respect to employees; the company must provide a comfortable working environment and bring happiness to its employees. Moreover, Mao Zhongqun focused on the teachings of Confucianism, specifically on the relationship between morals and institutions. Chinese history has shown time and again that attempts by the country to govern the people through decrees and penal codes invited many people to take advantage of loopholes in the law. Under such a method, a sense of responsibility or shame will never be fostered in

 Based on an interview with Mao Lixiang (18 Oct 2013, at Fotile’s headquarters).

8

116

M. Kawaguchi

the hearts of the people. The same can be said for corporate management. By contrast, Confucianism preaches the idea of ‘institutionalizing by li (courtesy)’. Controlling people by an institution alone is insufficient, and people foster a sense of shame and reverence and uphold a clear action policy on what they should and should not do by advancing moral education and developing an institution at the same time (Chen and Wang 2014). Through such contemplation, Mao Zhongqun made a decision to introduce various teachings of Confucianism into his management on all fronts. How did the introduction of Confucianism take place at Fotile? In the aforementioned core value sanpinheyi, renpin, in particular, is emphasized among the three characters. In order to show specific meanings of this renpin, Mao Zhongqun presented a conceptual figure of wu chang (the five Confucian virtues) with ren (benevolence), yi (justice), li (courtesy), zhi (wisdom), and xin (sincerity) as main axes. Mao Zhongqun himself worked on editing various documents for employee training, and he communicated the significance of studying Confucianism and the goals of Confucianism-based management at Fotile to the employees through these materials. In 2008, Mao Zhongqun built a ‘Confucius Hall’ near the entrance to the new headquarters building that opened the same year. This was the first time that a company in China built a Confucius Hall within its building, and the news was covered by various media when the hall was built. This space was used as a place for daily employee training as well as a classroom for the ‘College for Successor of Family Business’ that Mao Lixiang founded in 2006. After the Confucius Hall was developed, Mao Zhongqun encouraged employees to read Confucian classics such as the ‘Analects’ on a daily basis. This resulted in a number of employees starting to voluntarily read the classics at the Confucian Hall before starting daily work. With regard to the effect of this initiative, Mao Lixiang expressed his thoughts as follows: I had a penalty system in place for about 60 items. For example, a fine was imposed for smoking in non-smoking areas or for being late. However, my son abolished this penalty system as he introduced Confucianism into management. Once many of our employees started to read Confucian classics every morning, its impact was clear for everyone to see. In the first year, the number of employees that violated company rules was halved (compared to the previous year), and it continued to decline in the second year and beyond as well9.

In 2009, Mao Zhongqun gathered heads of various departments within the company and started the Confucianism-based management committee. A meeting was held once a month, where active discussions took place on how to incorporate Confucianism-based management philosophy into the management of work sites and how that philosophy should be adopted within the company. As an example, action guidelines by Fotile include an item called ‘five ones’, consisting of ‘set one goal’, ‘read one Confucian classic’, ‘correct one mistake’, ‘be filial to parents once’, and ‘do one good act a day’. This was a way to communicate

 Based on an interview with Mao Lixiang (18 Oct 2013, at Fotile’s headquarters).

9

7  A Sociological Approach to Management Philosophy of Chinese Family Businesses…

117

the teachings of Confucianism that is easily understood by beginners and an important mechanism for the philosophy’s dissemination. At Fotile, a training system called huijiakankan (let’s go home) was in place for employees of sales subsidiaries spread across the country, and this system has served a very important role in terms of propagating Confucianism-based management philosophy. Specifically, every fall, this programme invited sales subsidiary employees with excellent performance to the headquarters where they would interact with management executives and participate in a training programme (which includes lectures on Confucian teachings at the Confucius Hall) while staying at the headquarters for a week. This concept called huijiakankan aroused the spirit of Xiao (filial piety) in Confucianism and a metaphor that compares the headquarters to the family home of employees. Around 2008 when Mao Zhongqun was starting to introduce Confucianism, competition for able talents among companies was intensifying, and at Fotile, recruiting has also become a bigger problem than before. Ningbo, where Fotile headquarters was located, is classified as an economically advanced area, but it cannot be denied that the city is not as attractive as mega-cities such as Beijing, Shanghai, Guangzhou, and Shenzhen in terms of payroll standards and business opportunities. Therefore, for Fotile to secure able talents, the money-based approach is naturally limited, and under this awareness, Mao Zhongqun saw potential with the approach of a Confucianism-based corporate culture. Since then, given the sustainable development at Fotile, this change of viewpoint can be considered a success. Such a challenge of Confucianism-based management at Fotile has gained many followers through clever communication via various media. Many followers are attracted to Fotile due to its outstanding performance; however, what is required in Fotile seems to be more than just shu for expanding business scale and profits.

7.4  Implication of the Fotile Case To further interpret the case of Fotile as described above, this section places its case within the cultural context of family businesses in the Chinese society. Discussions here are based on the views held by Chen Chi-nan, a Taiwanese anthropologist who presented a model comparing Western, Japanese, and Chinese traditional family systems and corporate organizations in the 1980s (Chen 1986). As a premise for discussion, Chen argues that the characteristics of corporate organizations from the West, Japan, and China originate, to some extent, from their respective traditional family systems. First, Chen characterizes Western corporate organizations as having a management style that heavily emphasizes ‘contract’ and ‘market regulation’. In the West, various human relationships can be explained by the concept of a contract, which has become a fundamental principle of the modern capitalist market system. In order for a relationship represented by a contract to hold, a concept called individualism is needed as a premise. Western individualism

118

M. Kawaguchi

is represented best by individual property ownership, and its original form was present from ancient times in the traditional Western family system. In this system, the status of individuals was prioritized over family relationships in various facets of social life. Meanwhile, the concepts of contract, individualism, and individual property ownership were not present in Japan and China prior to modernization. Once the differences with the West are reviewed, Chen continues to expand on the comparisons between Japan and China. The traditional family systems in both societies shared various commonalities, and yet they were greatly different in terms of how blood relationship was perceived and how human relationships surrounding an individual were formed. As symbolized by an adoption system that is not limited by the blood relationship, continuity of the household (cooperation) was emphasized over the continuity of the blood lineage in Japan. As represented by the relationship between the ‘head family and branch families’, the human relationships in the ‘cooperation’ are characterized by the hierarchical relationship that spread in a vertical direction. The nature of such a family system is inherited in corporate organizations, and Chen characterizes the Japanese corporate organizations as having a management style that heavily emphasizes ‘cooperation’ and ‘hierarchical relationship’. Here, the blood relationship of owners is not absolute (the unrelated often inherits the ownership), and ownership and management can be separated relatively easily as the company develops. Once hired by a company, the worker is a formal member of the ‘cooperation’ and seen as a ‘family member’ by the owner and managers. Workers also see themselves as members of the ‘cooperation’ and hold a sense of unity and loyalty towards the company. By contrast, the continuity of blood lineage is emphasized above all else in China, and a household is seen only as a temporary tool for this purpose. As Fei Xiao-tong, a Chinese sociologist described in chaxugeju (differential mode of association), the human relationships concerned here spread in a horizontal direction, in a manner that resembles a ripple on a water surface with the self at the centre, where the degree of intimacy weakens as the distance from the centre increases (Fei, 1992). The nature of such a family system is passed on to corporate organizations, and Chen characterizes these Chinese corporate organizations as having a management style that heavily emphasizes ‘blood lineage’ and ‘differential relationship’. Here, the blood relationship of owners is absolute (in principle, ownership is not open to the unrelated), and great resistance works against the separation of ownership and management. Workers are hired from ‘differential relationships’ that surround the owner, but it is quite rare for them to be regarded as ‘family members’ by the owner. Workers also see the company as a private asset of the owner, and they rarely foster a sense of unity with the company or loyalty towards it. Based on fieldwork results among small and medium-sized companies in Taiwan, Chen also points out a heavy emphasis towards ‘profitability’ as another characteristic of Chinese corporate organizations. Undeniably, profits are essential to a company, and small and medium-sized companies from the West and Japan also pursue profits. Nonetheless, they do not only pursue profits but are also willing to sacrifice short-term profits for the long-term sustainability of their own companies and make efforts to maintain contracts and credible relationships for market regulation to

7  A Sociological Approach to Management Philosophy of Chinese Family Businesses…

119

function properly. By contrast, small and medium-sized companies in Taiwan are akin to ‘flowers in the desert’ that immediately suck up every single droplet of rain and dew and bloom all at once, only for all of them to wilt later. Chen argues that because the same behaviour is repeated, the desert does not get to witness a large tree with thick branches and leaves. Given these discussions, Chen notes that Chinese corporate organizations have the following ‘structural weaknesses’. Chinese corporations struggle to break free from the constraints of ideas from traditional family and human relationships as compared to their Western counterparts. Additionally, Chinese corporations are unlikely to create a cooperative-like sense of unity and loyalty among employees as Japanese counterparts do. Because Chinese companies solely pursue profits, many of them are short-lived like ‘flowers in the desert’. Considering the meaning of Fotile’s case, while taking the above discussions by Chen into account, the more than 20-year history of Fotile precisely represents the challenge of overcoming the ‘structural weakness’ of Chinese corporate organizations that Chen has pointed out. By studying Western approaches to business management while promoting the aforementioned ‘dilution of family elements’, Mao Lixiang and Mao Zhongqun made efforts to ensure that contracts and market regulations functioned properly and remove nepotism. By learning Japanese approaches to business management while introducing a Confucianism-based business philosophy, the Maos attempted to foster a cooperation-like sense of unity and to control the excessive pursuit of profits. Will the challenge of overcoming such a ‘cultural constraint’ foster progress as the Maos intended? Is the management model derived by the Maos from their own experiences something that can provide universal guidance on ‘how a business can be sustained longer’? Can the model work for other family businesses of the same era in China? It is too early at this point to make a final assessment on these points. In order to provide an even more abstract discussion on the dynamics surrounding the management philosophy of Chinese family businesses in this transitional period, the author will continue to follow the future developments of Fotile as well as to accumulate corporate cases and refine the research framework.

References Chen CN (1986) Wenhua de guiji (xiaze): hunyin jiazu yu shehui (Tracing the culture (second volume): marriage, family and society) (in Chinese). Yunchen Wenhua, Taipei Chen GY, Wang XY (2014) Renpin qipin chanpin saanpinheyi (The integration of three characters: character of the people, character of the company and character of products) (in Chinese). Zhejiang zaixian (Zhejiang online). http://nb.zjol.com.cn/system/2014/01/04/019793312_01. shtml. Accessed 31 Mar 2019 Fei XT (1992) From the soil: the foundations of Chinese society. University of California Press, Berkley

120

M. Kawaguchi

Kawaguchi M (2016) Chūgoku kigyō no keiei rinen ni kansuru yobiteki kōsatsu (Preliminary analysis on management philosophy in Chinese companies) (in Japanese). Kōnan daigaku sōgō kenkyūsho sōsho (Konan university research institute studies) 127:49–70 McFarlan FW, Zheng XM, Fang YR, Zhang H (2013) Ningbo FOTILE Kitchen Ware Co., Ltd. (TN). Tsinghua University Teaching Note. https://www.hbs.edu/faculty/Pages/item. aspx?num=50892. Accessed 31 Mar 2019

Chapter 8

Practicing the Company Philosophy to Survive: The Competitive World of Samsung Group Hiroshi Iwai

Abstract  This chapter examines the penetration and diffusion of Samsung’s management philosophy throughout the Samsung Group in South Korea. Samsung is the largest conglomerate in Korea and includes Samsung Electronics, Korea’s largest manufacturer of consumer electronics that is involved in the business of electronic parts, electronics, machinery, heavy industry, chemical, finance and insurance, and construction. The rapid growth of Samsung, especially Samsung Electronics, has attracted worldwide attention. Samsung has been studied from the perspective of management strategy. However, little attention has been given to the penetration and diffusion of Samsung’s management philosophy. Based on existing literature and interviews with ex-employees of Samsung and their families, I find that the mechanism through which Samsung propagates its company philosophy is by employing “message-driven management,” using strong messages, suggestive parables, and impressive performances. I explore the developments involved in this process by first presenting an overview of the history of Samsung from its founding to the present. Then, I discuss the management philosophy of Samsung. Finally, I analyze how Samsung’s management philosophy has penetrated the company’s culture and has been diffused among employees.

8.1  Introduction This chapter examines the penetration and diffusion of the management philosophy of Samsung Group (hereinafter “Samsung,” when referring to the entire group) in South Korea. Samsung is the largest conglomerate in Korea, with group sales of about 20% of the country’s gross domestic product (as of 2018). Samsung has about 320,000 employees in 73 countries and about 60 affiliates, including Samsung Electronics, Korea’s largest manufacturer of consumer electronics that is involved H. Iwai (*) Faculty of Letters, Tezukayama University, Nara, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_8

121

122

H. Iwai

in the business of electronic parts, electronics, machinery, heavy industry, chemical, finance and insurance, and construction. Samsung Electronics particularly accounts for the bulk of the group’s sales. The rapid growth of Samsung, especially Samsung Electronics, has attracted worldwide attention, and the saying that “Japanese companies should learn from Samsung” became prominent (Katayama 2011; ­ Yoshikawa 2011). Samsung has been studied from the perspective of management strategy. However, little attention has been given to the penetration and diffusion of Samsung’s management philosophy. In this chapter, I will explore the mechanisms involved in this process based on existing literature and interviews with ex-employees of Samsung and their families. This chapter proceeds as follows. First, I present an overview of the history of Samsung from its founding to the present. Then, I explore the management philosophy of Samsung. Finally, I analyze how Samsung’s management philosophy has penetrated the company culture and has been diffused among employees.

8.2  Samsung: From Its Founding to the Present 8.2.1  Founder: Lee Byung-Chull The origin of Samsung goes back to the “Samsung Trading Company,” established in 1938 by Lee Byung-chull in Daegu, Korea. Byung-chull was born in 1910, the second son of a farmer that manages a large farmland in Uiryeong-gun, Gyeongsangnam-do. In the same year, Japan’s rule over the Korean Peninsula started with the Japan-Korea Annexation Treaty. Byung-chull entered Waseda University in 1930, but he suffered from severe beriberi and dropped out the following year. After returning to Korea, in 1936, he founded a rice-producing cooperative with two friends in Masan but failed at management. In 1938, he bought a store in Daegu (the fourth largest city in South Korea), measuring about 800 square meters. He then established the “Samsung Trading Company,” which deals with vegetables, fruits, and dried fish. This is the origin of Samsung. Samsung means “three stars” in Korean. “Sam” means big, many, and strong, and “sung” means bright, high, and eternal shine (Lee 1986). In 1947, leaving his business in Daegu to others, Byung-chull moved to Seoul with his family and founded the “Samsung Corporation” in the following year. The company has grown to be Korea’s seventh largest trading company through trade with Manchuria, Beijing, Hong Kong, and Macau. However, when the Korean War broke out in 1950, goods imported before the war were burnt down, and the Samsung Corporation was dissolved. In 1951, Byung-chull founded the “Samsung Product Corporation” in Busan followed by “Cheil Sugar” in 1953 and “Cheil Wool Textile” in 1954. The production of sugar, clothing, and other consumer goods that were in

8  Practicing the Company Philosophy to Survive: The Competitive World of Samsung… 123

high demand at the time laid the foundation for the Samsung chaebol and earned Byung-chull wealth and fame as Korea’s leading entrepreneur. However, in 1960, after the collapse of the Rhee Syngman administration, resulting from the April Revolution, Byung-chull was investigated by the police on dishonest accumulation of wealth and tax evasion and was charged with a large amount of back taxes. In the next year, Park Chung-hee seized power through the May 16 coup, and Byung-chull was put under house arrest under a charge of illegal stockpile. In 1965, predicting a shortage of fertilizers in Korea, Byung-chull undertook the construction of a factory of “Korean fertilizers.” However, he was suspected of smuggling saccharine; and his second son, Chang-hee, and several employees were arrested. Consequently, Byung-chull not only donated the factory to the government but also resigned as chairman. With a series of scandals, Samsung was bitterly criticized by the mass media. Learning from this experience, Byung-chull founded Tong Yang Broadcasting (radio and television) in 1964 and JoongAng Ilbo (a newspaper company) in the next year and expanded his business to broadcasting and newspaper. In 1968, Byung-chull returned as chairman of Samsung Corporation and JoongAng Ilbo. In the next year, he established “Samsung Electronics Industries,” which later developed into Samsung Electronics; “Samsung Sanyo Electric,” which was a joint venture with Sanyo Electric in Japan; and in 1970, “Samsung NEC,” which was a joint venture with Nippon Electric Company in Japan. In January 1971, it is said that Byung-chull wrote a will and decided to appoint his third son, Kun-hee, as his successor. This was made public in an interview with Nikkei Business (August 29, 1977). In 1979, Kun-hee became the group’s vice chairman. In November of 1987, Byung-Chull passed away, and in December, Kun-­ hee became the group chairman.

8.2.2  Successor: Lee Kun-Hee Lee Kun-hee was born in Daegu in 1942. In 1953, when he was in the fifth grade of Busan Normal School (elementary school), he was sent to Tokyo to study, in keeping with his father’s advice: “See and learn from developed countries.” Kun-hee was separated from his parents when he was only 12 years old (Lee 2011). He spent 2 years in elementary school and 1 year in junior high school in Tokyo. During this time, his only friend was a dog, and he showed strong interest in movies and wrestling. His experience in Tokyo was beneficial to the development of his subsequent management style. Kun-hee is also famous for being a dog lover; he bred Jindo dogs, which are native to Korea, as a business and established a Jindo dog lovers’ association. Samsung’s efforts to nurture guide and hearing dogs appear to be based on Kun-­ hee’s appreciation for dogs. In 1993, the year of the “New Management Declaration” (discussed below), Kun-hee used the expression “killing five birds with one stone” in his new year’s speech. There is a proverb, “killing two birds with one stone,” which means achieving two things with a single action. He mimicked this proverb

124

H. Iwai

and pointed out the utility of keeping a dog. According to Kun-hee, keeping a dog has several benefits: (1) it makes children rich with emotions, (2) the spirit of animal welfare nurtures a person to be considerate and thoughtful, (3) training dogs contributes to society by preparing them to become police dogs and guide dogs, (4) dogs are useful for the therapy of autism, and (5) keeping a dog can avoid international criticism for the custom of eating dog meat in Korea (Hong 2003).Thus, “killing five birds with one stone” means that we can derive various benefits from one thing. The backdrop of this thought process is Kun-hee’s life in Japan, where a dog was his only friend. With regard to movies, it is reported that Kun-hee watched between 1200 and 1300 movies while studying in Japan. Through watching movies, he learned the “framework of thinking” and acquired the skill of human observation. In terms of wrestling, he played an active role as an athlete when he was in a high school attached to Seoul Normal University. Later, he served as the chairman of the Wrestling Association and a member of the International Olympic Association and made efforts to strengthen the sport of wrestling in Korea (Hong 2003). In 1961, under the direction of his father, Kun-hee studied at Waseda University’s Faculty of Commerce. Here, he was also absorbed in movies and golf. Through playing golf, he learned the importance of etiquette, manners, and mental strength. After graduating from Waseda University, Kun-hee studied business administration and journalism at the Business School of George Washington University in the United States. In 1 and a half years while studying in the United States, he replaced six American cars one after the other. This was not simply an exercise in luxury. After driving a car, he analyzed its structure and disassembled, reassembled, repaired, and resold the car. As a result, he acquired knowledge about the car and earned a profit of $600 to $700. Through the disassembly, assembly, and maintenance of automobiles, he discovered that 30% of the parts used in the cars made by Ford and General Motors are electrical and have electronic components. He predicted that in the future, electrical and electronic components would account for more than 50% of the parts used in automobiles (Hong 2003). This insight is closely related to the fact that Samsung’s core company is Samsung Electronics. In 1966, Kun-hee returned to Japan at the age of 26, and on his father’s recommendation, he met Hong Ra-hee, the eldest daughter of Hong Jin-ki, the Tong Yang Broadcasting chairman, and married her in the next year. Subsequently, he worked as a trainee at Samsung and officially joined Tong Yang Broadcasting in 1968. In 1987, with the death of Lee Byung-chull, Kun-hee became the group’s chairman.

8.2.3  The Second Foundation and the New Management Kun-hee, who took the position of chairman, declared the “The Second Foundation” of the newly established Samsung company and presented the vision to “grow Samsung into a global superstar by the 1990s.” In 1993, he went through a critical

8  Practicing the Company Philosophy to Survive: The Competitive World of Samsung… 125

year, which was considered a “very important turning point for Samsung” (Samsung 1998). In February of the same year, Kun-hee visited an electronics store in Los Angeles and was shocked to see his products being dusted in a corner of the store. He then gathered executives in a hotel room to compare Samsung’s products with those of major manufacturers worldwide. In Samsung’s history, this event is called the “LA Conference.” At the meeting, he disassembled the products one by one and pointed out the differences in the functions and parts of the products. Later, Kun-hee inspected Akihabara, Tokyo, and discovered the same situation as in Los Angeles. In March of the same year, a ceremony was held to celebrate the 55th anniversary of Samsung’s founding. This was regarded as “the fifth anniversary of the Second Foundation,” and Kun-hee declared this anniversary as the “second phase of the Second Foundation.” Moreover, the group’s management philosophy and logo were completely changed, and the company name written in Korean was changed to “Samsung” in English. However, Samsung had another turning point. In June, on a flight to Frankfurt, Germany, Kun-hee read a report titled “Management and Design” that Tamio Fukuda (former advisor of Samsung Electronics and current emeritus professor at Kyoto Institute of Technology) handed to him in advance. At the risk of resigning, Fukuda’s report urged Samsung Electronics to improve its status and design. Kun-hee was upset that nothing had changed at Samsung since the “LA Conference” based on Fukuda’s report, and he held a meeting at a hotel in Frankfurt. He also sent a strong message of reform to “change everything except your wife and children!” (otherwise, we can’t survive). This date, June 7, was later called “Frankfurt Declaration” and was recorded as the date of “Samsung’s New Management Declaration” (Samsung 1998). Starting with the “LA Conference” in February and going through the “Frankfurt Declaration,” Kun-hee’s special lecture and conference ended in Fukuoka in August. During this period, 1800 people with the rank of deputy general manager or higher and more than 90% of executives were summoned to meetings overseas, and Kun-hee gave several hundred hours of special lectures. Records of these special lectures are compiled into a collection called Samsung New Management and Glossary of Samsung Man: Let’s go in one direction, which are translated into various languages for purposes of employee education. In short, the “New Management” means “Quality Management.” Aiming to become a first-rate company in the twenty-first century, the plan calls for “Quality Management” through “internationalization,” “complexity,” and “computerization” based on the current recognition of a “sense of crisis” and “reflection on the past.” “Complexity” refers to the effective combination of related infrastructure, facilities, functions, and software and is applied to various fields (from the integration of television sets and videocassette recorders to the integration of buildings) in order to maximize competitiveness and efficiency. This concept is embodied in Samsung’s management strategy in many ways. Kun-hee promoted the “3PI movement,” as well as the “New Management.” The “3PI movement” means “personal innovation” (consciousness reform), “process innovation” (innovation of the entire process), and “product innovation” (creation of innovative products). In other words, this is a process of reforming employees’

126

H. Iwai

attitudes and the organizational culture, reviewing operations and increasing efficiency, and developing innovative products that can become a source of competitiveness. In particular, the design division was strengthened for the development of innovative products. In 1997, South Korea was placed under the management of the International Monetary Fund (IMF) in the aftermath of the Asian currency crisis. Samsung also suffered a major blow, shedding its affiliates, streamlining its operations, and cutting about 50,000 jobs across the group. Since then, Samsung has emerged from the crisis and has grown into a global brand with Samsung Electronics as its core company. However, as a result of the charges of tax evasion and breach of trust, Kun-hee resigned as chairman in 2008. In the subsequent year, the eldest son of Kun-hee, Lee Jae-yong (1968–), assumed the post of vice president of Samsung Electronics, and preparations for the hereditary succession were made. In 2010, Kun-hee returned as chairman of Samsung Electronics, and Jae-yong was promoted to president. On June 7, 2012, in the face of the global recession triggered by the European debt crisis, Kun-hee announced that “we must undergo revolutionary changes comparable to the Second New Management” and carried out bold personnel changes. It coincidentally was the same day as the “New Management Declaration” in 1993. In 2014, Kun-hee was hospitalized due to a heart attack. It is reported that he has been in a stable condition since then and celebrated his 77th birthday in a hospital bed.

8.3  Samsung’s Management Philosophy Founder Byung-chull has three “core values” in his management philosophy: “making an economic contribution to the society” (hereinafter “contribution”), “giving priority to human resources” (hereinafter “human resources”), and “the pursuit of rationality.” The philosophy on “contribution” reflects his ambition to enrich Korea through trade and the lives of Korean people by providing high-quality goods. It is assumed that the ambition came from his painful experiences during the Japanese colonial period followed by the Korean War. With regard to Samsung’s economic contribution to Korea, in an interview with Nikkei Business, a Japanese journal, Byung-chull proudly stated that “Samsung group’s tax payments over 25 years account for 2.5%–3.5% of the total tax revenues of Korea. You know, this is by only our group. There is no precedent for that. This shows how we have contributed to our country” (Nikkei Business, August 29, 1977). The philosophy on “contribution” is similar to a typical management philosophy of Japanese companies such as “contribution to society,” a core value of the management philosophy of Panasonic Corporation. It is possible that Byung-chull was influenced by the management philosophy of Japanese companies considering that Byung-chull studied in Japan and thought that Korean companies should learn from Japanese companies. As mentioned earlier, Byung-chull established a joint corporation, Samsung Sanyo Electronics, with Toshio Iue, founder of Sanyo electric. Iue is

8  Practicing the Company Philosophy to Survive: The Competitive World of Samsung… 127

a brother-in-law of Kōnosuke Matsushita, founder of Panasonic Corporation. Therefore, it is likely that Byung-chull learned the management philosophy of Matsushita through Iue. Yoshikawa (2011) has a hypothesis that Kun-hee also learned a lot from the management philosophy of Matsushita and points out the similarities between the “New Management” by Kun-hee and “The meaning of business” by Matsushita.

8.3.1  Prioritizing Human Resources Samsung’s philosophy on “human resources” has been the most important element of the group’s management philosophy up to the present. Byung-chull stresses the importance of human resources and education, saying that “most people forget this simple principle, namely, people run the business” (Lee 1986: 71). This philosophy on “human resources” was developed from his experience. In 1950, Samsung Trading Company was burnt down in the Korean War, and Byung-chull took refuge to Daegu with his family and employees. After arriving at Daegu, employees gave three billion yen from their savings to Byung-chull, and with that money, he founded Samsung Trading Company. Byung-chull tells the story, emphasizing the importance of trusting people (Lee 1986). In 1954, Samsung became the first Korean company to introduce an open recruitment system that embodies the “human resources” principle. Until then, it was common in Korea to hire employees by blood, regional, or academic connections. Recruitment examinations were conducted in the order of the first written examination, the second interview, and the physical examination. Byung-chull attended the interviews as much as possible. He listed four criteria to consider for employment during interviews: health, good looks, positivity, and honesty. The criterion of good looks is based on the belief that human nature that is hidden inside is reflected through good looks. Moreover, Byung-chull cautions: “don’t use a suspicious person from the start; trust the person who has followed through to the end” (Lee 1986). The factory of Cheil Industries, established in 1954, had a company dormitory that was completely equipped with steam-heating and flush-toilet systems. This provided 1000 female employees a comfortable living environment. It was an epoch-­ making arrangement at that time and reflected the “human resources” principle. Byung-chull never wanted to let female employees work under poor conditions, as depicted in Wakizō Hosoi’s novel Pathetic Life of Mill Girls (Hosoi 1925), which he read in Japan. Another example of the application of the philosophy on “human resources” is Samsung’s human resource development program. Byung-chull founded the Dongbang Institute in the Yongin Nature Farm in Gyeonggi Province in 1978. Since then, with increases in the number of employees and the diversification of industries, branches of the institute have been established in various places. At present, aside from new employee training programs, various other training programs are

128

H. Iwai

provided in the “Samsung Human Resources Development Center” in Yongin. Samsung invests a significant amount of money in human resource development every year. Samsung is also known for focusing on in-house talent development and for headhunting talent worldwide annually.

8.3.2  Samsung’s Control Tower One of the achievements of the philosophy on the “pursuit of rationality” is the establishment of a “Chairman’s Secretariat.” This was established by Byung-Chull in 1959, and it was only a small part of Samsung Corporation, consisting of dozens of people. The secretarial office was divided into planning, personnel, finance, audit, and secretarial teams to support Samsung’s management policies and to coordinate and manage group companies. The secretariat serves as an assistant to the chairman, vice chairman, and president of each group company and as a command center for the entire group. In the 1970s, with the expansion of the organization, the secretariat was expanded to 15 teams with about 250 employees. In 1998, the “Chairman’s Secretariat” was renamed “Corporate Restructuring Headquarters.” This was done in response to the IMF crisis that occurred the previous year and included the liquidation and restructuring of struggling companies. The “Corporate Restructuring Headquarters” comprises seven teams in charge of financial affairs, personnel affairs, management diagnosis, public relations, secretaries, legal affairs, and planning. About 100 employees from each member company were recruited to the headquarters (Hong 2005). Since then, the “Corporate Restructuring Headquarters” has transcended its role as a task force to deal with the IMF crisis, forming a triangle with its chairman and group presidents, and has become so powerful that it has been called the “Blue House in the business world.” Later, it was revealed that some convertible bonds of Samsung Everland, Samsung’s holding company, were sold to Lee Jae-yong at an unreasonably low price and that Samsung provided funds for the presidential election. There was criticism that the “Corporate Restructuring Headquarters” was behind these series of problems, and in 2006 the headquarters was downsized and renamed the “Strategic Planning Office.” It was dissolved in 2008 when Kun-hee resigned as Samsung’s chairman, but it was revived in 2010 as the “Future Strategy Office” when Kun-hee returned as Samsung’s chairman. It is made up of 6 teams and about 150 people, and the “Council of Presidents,” which is Samsung’s supreme decision-making body, was placed above it. However, in 2017, in connection with South Korea’s presidential scandal, the “Future Strategy Office” and the “Council of Presidents” were dissolved. In 2016, the scandal came to light, revealing that the former president, Park Geun-hye, and her old friend, Choi Soon-sil, were involved in the influence-peddling and leaks of classified information. In relation to the scandal, Lee Jae-yong was arrested for five crimes including bribery to Choi Soon-sil. In 2018, he was sentenced to 2 years and 6 months in prison and suspended for 4 years. The scandal drew public criticism and

8  Practicing the Company Philosophy to Survive: The Competitive World of Samsung… 129

Samsung announced the dissolution of the “Future Strategy Office” and the “Council of Presidents,” making an appeal for an organizational reform of Samsung.

8.3.3  Samsung’s Value System At this time, what represents the management philosophy of Samsung is the “Samsung Value System.” It consists of three elements: management philosophy, core values, and business principles. Samsung states its management philosophy as follows: “we will devote our human resources and technology to create superior products and services, thereby contributing to a better global society.” The core values comprise five elements: people, excellence, change, integrity, and co-­ prosperity (Table 8.1). According to Samsung, the core values represent the values that define Samsung’s spirit as shared among employees. However, Katayama (2011) pointed out that Samsung’s core values were established in 2005 as a result of a thorough analysis of management philosophies of global companies such as Sony, Toyota, and General Electric. Meanwhile, in 1984, Byung-Chull announced that the Samsung spirit consists of five principles: entrepreneurship, morality, pursuit of the best quality, perfection, and coexistence and mutual prospering of businesses. It is possible that the Samsung spirit was redefined as Samsung’s core values. Therefore, the “Samsung Value System” has been established through the process of reinterpretation of the founder’s management philosophy, in addition to the analysis of management philosophies of global companies. Table 8.1  Samsung’s core values People

Quite simply, a company is its people. At Samsung, we’re dedicated to giving our people a wealth of opportunities to reach their full potential Excellence Everything we do at Samsung is driven by an unyielding passion for excellence and an unfaltering commitment to develop the best products and services on the market Change As we have done since our foundation, we set our sights on the future, anticipating market needs and demands so we can steer our company toward long-term success Integrity Operating in an ethical way is the foundation of our business. Everything we do is guided by a moral compass that ensures fairness, respect for all stakeholders, and complete transparency Co-prosperity Samsung is committed to becoming a socially and environmentally responsible corporate citizen in all of its communities worldwide Samsung’s core values. Retrieved May 20, 2019, from https://www.samsung.com/latin_en/aboutsamsung/vision/philosophy/samsung-spirit/

130

H. Iwai

8.4  P  enetration and Diffusion of Samsung’s Management Philosophy Based on the preceding discussion, I analyze in the next section the process of penetration and diffusion of Samsung’s management philosophy among employees. I call the Samsung way of management “message-driven management.” By this I mean managing by using powerful message, analogy, or metaphor and performance. In this sense, the management philosophy of Samsung has characteristics of “management philosophy as a message.” Using various labels, such as the “New Management” or the “Second Foundation,” and exaggerated messages like “change everything except your wife and kids” in the “Frankfurt Declaration” are typical examples of “message-driven management.” Around the same time as the start of the “New Management” in 1993, Kun-hee pointed out the problems of Samsung as follows: “Samsung Electronics has advanced cancer, Samsung Heavy Industries suffers from malnutrition, Samsung Construction suffers from malnutrition and diabetes, and Samsung General Chemicals should not have been established from the beginning. Samsung Corporation has symptoms between that of Samsung Electronics and that of Samsung General Chemicals” (Hong 2003). This message, using disease metaphor, strongly expresses problems that Samsung companies have.

8.4.1  Nishikigoi and Catfish Examples of parables in the “message-driven management” include the “nishikigoi talent theory” and “catfish theory.” One of the most famous videos used in Samsung’s training program is called “nishikigoi video.” The video, which begins with a peaceful rural landscape in Japan, is about the cultivation of nishikigoi (colored carp) in Yamakoshi Village, Niigata Prefecture in Japan. It depicts the tearful efforts of the nishikigoi master who has produced “masterpieces,” enough to win prizes in competitions. From only 13 nishikigoi, five million young fishes are born. Only four or five of them will be available at the competitive exhibition. This means that 4,999,995 fishes will be discarded (Shin 2010: 27–31). Samsung also has an idea called “catfish theory.” If one puts loaches in a shoal of only loaches and in another shoal of loaches with one catfish, loaches in the latter shoal become stronger. This is because loaches move around and eat a lot of food to avoid being eaten by the catfish. The “nishikigoi video” suggests the difficulty of human resource development through the efforts of nishikigoi artisan and implies that Samsung seeks employees that can overcome competition. The idea is similar in the “catfish theory.” This theory emphasizes the principle of competition and competing for survival. These metaphorical stories, different from direct message-­ driven management, effectively convey the management philosophy and make it easy for the employees to remember the message.

8  Practicing the Company Philosophy to Survive: The Competitive World of Samsung…

131

8.4.2  Washing Machine Incident and Burning Ceremony When it comes to message through performance, there are episodes of the “washing machine incident” and the “burning ceremony.” Even before the start of the “New Management,” Samsung has attempted to document internal issues and broadcast them on its in-house network as part of its work improvement campaign. In June 1993, a video was shown on a washing machine production line showing a person in charge shaving a plastic lid that did not meet specifications with a box cutter. The video shows that the company did not fix the defective parts, but instead shipped products that had been given emergency treatment. Kun-hee was enraged and immediately suspended the washing machine production line. He not only reprimanded the deputy secretary over the phone but also ordered him to record the conversation. The tape is reportedly being used as an educational material for presidents and executives (Lee 2010: 213–215). This is the “washing machine incident.” In addition, many defective products were found in mobile phones distributed to employees after the declaration of the “New Management.” Aiming to focus on quality, Kun-hee gathered about 150,000 defective mobile phones (with a total value of about 50 billion won), piled them in the center of the stadium like a mountain, and set them on fire to burn. He then showed the scene to 2000 Samsung employees. This is the “burning ceremony” of defective products. An important part of Samsung’s “message-driven management” is that its impactful messages, suggestive parables, and impressive performances are overlaid on the group’s history and “mythologized.” By “mythologization” I mean that people treat specific past events as sort of a “myth,” calling them symbolic names and emphasizing the symbolism and significance of the events. For example, the names “LA Conference” and “Frankfurt Declaration” are as if they are historical events to be remembered. They have been repeatedly mentioned as important epochs in the history of the company. The “mythologized” events have been disseminated and shared among employees through various training programs.

8.4.3  Twenty-Five Nights, 26 Days, and a Mass Game As mentioned previously, Samsung focuses on human resources development, as reflected in the training of new employees. After joining the company, new employees are trained for 25 nights and 26 days. This consists of a learning program that begins with an early morning run and continues into the evening, where they learn about the “Samsung Man,” from management philosophy to business manner. About 70%–80% of the programs are hands-on and participatory, and there are programs that reproduce Samsung’s history in dramas. According to Mr. H, who is a management consultant and once worked as a lecturer at Samsung Human

132

H. Iwai

Resources Development, “I have never seen it or attended it, but the last event of the training seems to strengthen employee cohesion. It seems to be a kind of religion.”1 Mr. H says that the event is considered as the “summer training camp” held every June. About 8000 new employees and the presidents and executives of group companies participate in the program to strengthen the unity of the group. Several videos of the sports festival can be seen on YouTube. In the video clip of the festival, beginning with a torch relay, cheerleading competition and various performances are practiced. In particular, the mass game of team rivalry is perfectly coordinated, showing the unity of employees. There is also the expression “Pride in Samsung,” displayed on both sides of the special stage. The next day of the festival, employees go mountain climbing early in the morning. In the evening, people gather in the stadium with candles that are lighted by executives, gently spreading out in the circle of people. Executives on the stage yell “Samsung is the one!” and “we are the one!”, and participants repeat the same chants. This is the climax of the “summer training camp.” This is exactly what Mr. H described as being “religious.”

8.4.4  Samsung Man and the Worker Ant Those who have successfully completed the new employee training and have become “Samsung Man” must survive harsh competition. It is said that about 10% of those who join Samsung in the first year and about 30% in the next 3 years will retire. In an interview, Byung-chull said, “the biggest problem is that about one third of the people who spend three or four years on training run away” (Nikkei Business, August 29, 1977). Even if employees enter their fourth year, many of them leave early if they are in their mid-40s and have no chance of success. After retirement, they either work for another company or start a business, but it is said that being a “Samsung Man” is an advantage for one’s career. Early retirement and entrepreneurship call to mind Recruit Corporation in Japan. When asked about the contrast between Samsung and Recruit, Mr. P, ex-employee of Samsung Electronics who now heads corporate marketing, said, “Samsung is not a company that makes CEOs like Recruit does but a company that makes ‘worker ants.’ The system is robust enough that someone can take over their role if they quit.”2 He also stressed the importance of the role of the “Secretariat” as part of the system. He shared an interesting story about the struggle for survival at Samsung. He was in charge of marketing refrigerators at Samsung Electronics, and at one point, he was put in charge of sales promotion in Latin America and was ordered to “sell refrigerators in 14 countries in 14 days.”3 This demanding mission can be seen as a way to assess the capabilities and qualities of employees. Apart from Mr. P, I

 An interview with Mr. H on February 20, 2011 in Seoul.  An interview with Mr. P on March 11, 2009, in Ansan. 3  An interview with Mr. P on March 11, 2009, in Ansan. 1 2

8  Practicing the Company Philosophy to Survive: The Competitive World of Samsung… 133

had the opportunity to interview his family, and it was interesting that the same story was told as a symbol of the severity of the Samsung era4. The “14 countries in 14 days” mission sends out an impressive message.

8.4.5  T  he Principle of Competition and the Principle of Reward and Punishment After quitting as a “worker ant,” Mr. P maintains a sense of attachment to Samsung and is extremely proud to have been a “Samsung Man” even now. The reason why Mr. P retired from Samsung is that he felt “I cannot work at a competitive company like Samsung.” However, he said that he never felt dissatisfaction with the working environment5. His mother also said, “job was tough, but the treatment was not bad.”6 It is assumed that “Samsung Men” can be “worker ants” because of their pride and the potential high rewards for work achievements. While the basic salary at Samsung is not much different from that of other companies, employees can receive high rewards based on their work achievements. Behind this, there are the principle of competition and the principle of reward and punishment that good work will be rewarded and bad work punished. Incidentally, in Korea, what does it mean to be a “Samsung Man?” The rate of employment of university graduates has been about 60% in the last 5 years. In addition, the rate of enrollment in higher education is about 75%. Accordingly, in Korea, although many people go to universities, it is difficult to get a job. In this situation, the “Samsung Man” represents the chosen elite. In the employment examination of Samsung, applicants have to pass the vocational aptitude test called “Samsung Aptitude Test.” Moreover, a Test of English for International Communication score of at least 900 is required to pass the examination. This way, the severe competition begins before joining Samsung. Even after entering Samsung, in order to be a “Samsung Man,” employees have to learn Samsung’s management philosophy and the “Samsung Glossary” (jargon used in Samsung) and make these a part of themselves. For example, in general, “infrastructure” means the basic systems and services such as transport and power supplies. In Samsung, it has a practical and strategic meaning as follows: the distance to airport or harbor from the place in question, the availability of workers, and the availability of industrial water (Hong 2003). The “Samsung Man” cannot survive at Samsung unless he understands such jargon. Katayama (2011) points out that it is because Samsung has trained “cookie-­ cutter” employees who share the same values and ways of thinking that they have developed the skill of quick decision-making. When a “Samsung Man” hears a  An interview with Mr. P’s mother on January 28, 2009, in Seoul.  An interview with Mr. P on March 11, 2009, in Ansan. 6  An interview with Mr. P’s mother on January 28, 2009, in Seoul. 4 5

134

H. Iwai

s­ pecific word or phrase in the “Samsung Glossary,” which outsiders never figure out, they can quickly respond because they share its meaning. I defined the Samsung way of management as “message-driven management.” Kun-hee has continuously sent out powerful messages. To understand these messages correctly and gain rewards from work achievements, it is indispensable for employees to master the “Samsung Glossary,” which is, in a sense, a “code book” to decode messages. The history of Samsung is accumulated in the “Samsung Glossary.” In Samsung, where the principle of competition and the principle of reward and punishment are basic rules, employees must learn the management philosophy and the “Samsung Glossary” to survive.

8.5  Conclusion In this chapter, I examined the penetration and diffusion of the management philosophy of Samsung. I defined the Samsung way of management as a “message-­ driven management,” using strong messages, suggestive parables, and impressive performances. Numerous messages have been superimposed on the history of Samsung and “mythologized.” These “myths” have been recorded in the company history and shared among employees through various training programs and everyday practices. Studies on management philosophy have been focused on efforts by companies to penetrate and diffuse their management philosophies among employees. However, in Samsung’s case, employees are required to understand messages Kun-hee continuously sends out and apply them on everyday business. Therefore, employees learn the management philosophy to survive as a “Samsung Man.” Meanwhile, managers, including chairman, presidents, and executives, have continuously reinterpreted the management philosophy according to changing situations. The “Management Philosophy” set up in 1993 was a reinterpretation of the management philosophy since the company’s founding. Samsung’s core values, established in 2005, are a combination of the reinterpreted philosophy of the “Samsung Spirit” since its founding and the elements learned from management philosophies of global companies. Furthermore, the integration of three elements, namely, management philosophy, core values, and business principles, into Samsung’s value system is reinterpreted as a management philosophy aiming for a global company. In summary, managers have continuously reinterpreted management philosophies by adapting to the environment and propagating them among employees through powerful message-driven management techniques, suggestive parables, and impressive performances. In turn, employees are required to understand the messages correctly by referring to the “Samsung Glossary” and applying the messages on their everyday work. This is the mechanism of the penetration and diffusion of Samsung’s management philosophy.

8  Practicing the Company Philosophy to Survive: The Competitive World of Samsung… 135

“Message-driven management” and the required learning of the management philosophy to survive may seem slightly idiosyncratic among East Asian companies. Therefore, the case of Samsung is suggestive of a comparative study of management philosophies. Further consideration is necessary to utilize the case for a comparative study. Note  This chapter is a revised version of Iwai (2003).

References Hong HS (2003) Samsung wo Kizuita Otoko: Lee Kun-hee (The man that built up Samsung: Lee Kun-hee) (in Japanese). Nihonkeizaishimbunsha, Tokyo Hong HS (2005) Samusung CEO (Samsung CEO) (in Japanese). Tōyōkeizai shimpōsha, Tokyo Hosoi W (1925) Jokō Aishi (Pathetic life of mill girls) (in Japanese). Kaizōsha, Tokyo Iwai H (2003) Dojō wo Kainarasu Hōhō: Samsung Group no Message Keiei (Way to domesticate loaches: message-driven management of Samsung Group) (in Japanese). In Mitsui I (ed) Asia-­ kigyō no keieirinen: Seisei Denpa Keishou no Dynamism (Management philosophy of Asian companies: dynamism of creation, diffusion, and succession). Bunshindō, Tokyo Katayama O (2011) Samsung no senryakuteki management (Strategic Management of Samsung) (in Japanese). PHP Kenkyūsho, Kyoto Lee BC (1986) Shijō wa Sekai ni Ari (Market is the world) (in Japanese). Kōdansha, Tokyo Lee KS (2011) Lee Kun-hee: Kodoku na Teiou (Lee Kun-hee: lonely emperor of Samsung) (in Japanese). Tōyōkeizai shimpōsha, Tokyo Samsung (1998) The 60-year History of Samsung (in Korean). Samsung, Seoul Shin WD (2010) Samsung no Saikyō Management (The most powerful management of Samusung) (in Japanese). Tokuma shoten, Tokyo Yoshikawa R (2011) Samsung no Kettei wa Naze Sekaiichi Hayainoka (Why is the decision making of Samsung the fastest in the world?) (in Japanese). Kadokawa shoten, Tokyo

Chapter 9

Asian Financial Crisis and LG Electronics Paradigm Shift Seongbong Hong

Abstract  LG’s management philosophy can be briefly summarized as “value creation for customers” and “human-centered management.” LG prioritizes its customers, who serve as the foundation of the business, to ensure their maximum satisfaction. LG’s management philosophy of respecting human values and harmony has been handed down from its predecessors. Among Korean companies, LG stands out for its unique corporate culture and history. Although Samsung’s scale and sales volume are higher, LG has pioneered the development of the Korean electronics industry and taken it forward. Up until the 1980s, surprisingly, LG maintained the top ranking as a Korean conglomerate. Against this background, this study explores the transformation of the management philosophy and strategy of LG Electronics. The study further examines if LG has managed to strengthen its market competitiveness while coping with the changing business environment and to confirm its superiority in the global market from inception to the present. In particular, the study focuses on LG’s global expansion and the transformation of its competitive strategies both before and after the Asian financial crisis.

9.1  Introduction It is said that Samsung, Hyundai, and LG businessmen have the following qualities: A “Samsung Man” is meticulous, a “Hyundai Man” is rash, and an “LG Man” is somewhere in between. A media professional Asian Financial Crisis who is familiar with LG describes the company LG Electronics as a “humanistic company that sparks a sense of intimacy with the public but is also indecisive” and further says: “Their meticulousness and ability to move forward lie somewhere in between that of Samsung and Hyundai,” “They’re stable and never do something sporadically,” and “They tend to seek stability rather than adventure” (Kim: 2010). LG describes S. Hong (*) Faculty of Business Administration, Shujitsu University, Okayama, Japan e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5_9

137

138

S. Hong

its corporate culture as “In-Hwa,” which means harmony. Moreover, LG meticulously follows “Jeong-Do Management” as its ethical code of conduct. This study specifically explains how LG Electronics has driven the Korean economy and contributed to the growth of the country’s home appliances industry; It also considers the roles played by its management philosophy and how it transformed while overcoming numerous business crises. First, along with LG’s management philosophy, we will briefly explain the history from its inception to the present. It is interesting to note that LG Electronics was a dominant consumer electronics manufacturer in Korean consumer electronics market until the 1980s, with a competitive advantage in sales over its competitor, Samsung Electronics. The study focuses on the 1997 Asian financial crisis, including the postcrisis structural reforms seen by Korean consumer electronics manufacturers, mainly  LG Electronics, against the backdrop of Korean manufacturers advancing into the emerging markets. Finally, the study analyzes how LG Electronics has shifted to a strategy of focus, integration, and added value during a period of structural reform among Korean companies during the financial crisis.

9.2  First Korean Consumer Electronics Manufacturer 9.2.1  LG’s Inception and its Spirit of Harmony Since its inception, LG has emphasized the spirit of “harmony.” In 1931, In-hwoi Koo, LG’s founder, opened the Koo-in-hwoi store in Jinju, South Korea. In 1945, the office was relocated to Busan, followed by the establishment of Chosun Industrial Enterprises. At the time, the company was the first trading company to be recognized by the US military administration. Man-jung Hu, Koo’s millionaire nephew, had high regard for Koo’s business skills and made two requests: first, he asked In-hwoi Koo to invest in his business, and second, Hu asked him to teach the concepts of business to his son, Jun-goo Hu, on his return from studying in Japan. Joint management1 by the Koo and Hu families with the participation of Jun-goo Hu marked the start of the LG legacy. In-hwoi Koo grew up in a strict Confucian household where he learned the importance of love, friendliness, diligence, and honesty while living as a member of a large family. He was educated at home school in the spirit of “harmony,” which he promoted later as his business style. Chosun Industrial Enterprise started as a cosmetics distributor. In-hwoi Koo set up a cosmetics production plant at the Busan residence and manufactured its products for the first time in South Korea under the brand name Lak-hui (pronounced “Lucky”). Lak-hui cream gained popularity, leading to the establishment of Lak-hui 1  The Koo and Hu families had a 60:40 stake in the business, respectively, and jointly managed the business for 60  years. In 2005, the Hu family split off from the LG group and launched GS Holdings. GS Holdings has a history of being in the same trade as LG previously and still maintains friendly relations with LG.

9  Asian Financial Crisis and LG Electronics Paradigm Shift

139

Chemical Industrial Corporation in 1947. During the Korean War in 1950, Koo discovered that the lids of American cream containers were made of synthetic resin, so he considered entering the plastic industry. Amid the war and turmoil, he set up several factories and spurred the development of the Korean plastic industry, such as basins, dishes, and toothbrushes. By 1955, he developed the first cream-type toothpaste, and the Lak-hui Chemical Industrial Corporation began its journey of becoming a major company (LG Electronics 2008a).

9.2.2  Geumseong-Sa (Goldstar Company) The Korean War (1950–1953) destroyed many industrial facilities in South Korea. In particular, the future of the electronics industry appeared bleak. However, In-hwoi Koo was convinced that electronics would be the next industry boom, providing consumers with daily necessities, but he was met with opposition. South Korea had no experience of developing an electronics industry, and most of his peers believed that there was no room for the domestic industry to grow. Moreover, since better quality foreign products were being smuggled into the country at that time, there was no chance of beating the competition. In-hwoi Koo overcame this opposition, and in 1959, he entered the electronics industry with the production of domestic radios. Although he was able to produce radio chassis using the plastic technologies acquired through Lak-hui Chemical Industrial Corporation, he was completely inexperienced in developing electronics. Hence, there was enormous uncertainty surrounding prospects for starting an electronics manufacturing business. In 1958, the Geumseong-sa (Goldstar Company) was established. It drew up a basic business plan and specific concepts for radio production. “Geumseong-sa” in Korean means “Goldstar Company.” The term “Geumseong” or “Goldstar” represents infinite possibility and reflects the company’s desire to become a shining beacon that illuminated South Korea. This decision by In-hwoi Koo marked the start of South Korea’s electronics industry, beyond the hopes of individuals and businesses, and also sparked a revolution in the lives of Korean people (LG Electronics 2008a).

9.2.3  Practicing Jeong-do Management Ja-kyeong Koo, chairman of LG from 1970 to 1995, is the eldest son of In-hwoi Koo, the founder of LG.  During his time, LG developed internationally: exports increased and an overseas corporation was founded. The Ja-kyeong Koo era marked the establishment of LG’s management philosophy. Kim (2010) states that LG’s management philosophy envisioned in 1990 can be summarized as “value creation for customers” and “human-centered management.” The philosophy prioritizes the customers, who are the foundation of the business, to maximize customer

140

S. Hong

s­ atisfaction. The philosophy also incorporates the principle of respecting the creativity and independence of each employee and maximizes individual ability through performance-­based management. The Jeong-Do Management philosophy was introduced by Bon-mu Koo, the grandchild of the company’s founder and LG’s third chairman as of 1995. The philosophy represents LG’s approach of “competing righteously by fostering competitiveness through never-ending innovation.” In 2005, Bon-mu Koo enacted and promulgated the “LG Way,” which embodies LG’s management philosophy, culture, and vision. The “LG Way” involves practicing “value creation for customers” and “human-centered management” through “Jeong-Do Management,” by creating the ultimate brand, “No. 1 LG.”

9.3  Business Strategy with Selection and Focus 9.3.1  LG Electronics Before the Asian Financial Crisis Previously, Korean companies had not developed an infrastructure to support their corporate activities, such as capital markets and the means to produce components, because of the newness of the industry. Large companies focused on business multi-­ lateralization to address this issue. For instance, several companies introduced specific, in-house corporate activities, such as including procuring raw materials and marketing services, as it was difficult to source these directly from the domestic market. Founded in Busan, South Korea, in 1958, LG Electronics (formerly Geumseong-sa) is Korea’s first industrial electronics company. In 1959, nearly 60% of the industry’s radio parts were domestically produced,2 which represented a huge advance in South Korea’s electronics industry, compared to earlier companies that imported all of the parts required for assembling products in Korea. As of 1969, LG Electronics had a lineup of 18 home appliance products. The domestic market shares were as follows: refrigerators (85.6%), fans (49.3%), and TVs (47.4%), making LG South Korea’s leading home appliance manufacturer. Simultaneously, LG expanded to other fields including communication equipment and electric wires. Its telecommunications department mainly produced switchboards, on-site facility switchboards, telephones, and integrated electricity meters (Kim 2010). By 1969, LG had emerged as one of the largest companies in South Korea. It owned about ten companies in its group and held interests in communications, cable broadcasting, chemicals, and essential oils. However, LG felt the need to have more control its growing number of subsidiary companies; hence, it introduced its group

2  The brand (Goldstar) was born from the first domestic vacuum tube radio (A-501) produced by LG Electronics in 1959. This brand name was used for 30 years thereafter.

9  Asian Financial Crisis and LG Electronics Paradigm Shift

141

management system. With Lucky Chemical as the parent company, a planning and coordination office was set up in Seoul to manage the entire group (Kim 2010). Later in the 1970s, Samsung and Daewoo entered the market, which marked the establishment of a competition in the Korean domestic market. There was a noticeable growth in LG Electronics’ exports around this time. Starting with the establishment of the branch office in Los Angeles in the United States in 1972, they expended their overseas branch offices to various other regions, including Germany, the Middle East, and Singapore. In the 1980s, branch expansion continued to include Tokyo, Hong Kong, Nigeria, and India, among others. The Lucky Group changed its name to Lucky-Goldstar in 1984 and then to the name it has today, LG, in 1995 after noting that the initials of “Lucky Goldstar” were “LG.” In the 1980s, LG was the leading company in South Korea, followed by the Daewoo Group, Samsung Group, and Hyundai Group, respectively. From the 1980s to the 1990s, there was rapid globalization in South Korea, and the number of companies entering the foreign markets increased as external environment changed. Some of these changes included democratization, market liberalization, stock market development, acceptance of foreign investments, and expansion of foreign currency borrowing. Owing to these external changes and the opening up of new business opportunities, LG Electronics also tapped into its internal funding capabilities and expanded the business areas it operated in. It began to diversify into new and unrelated areas, which involved entering various other industrial fields.

9.3.2  Selection and Focus After the Asian Financial Crisis Although South Korean conglomerates are similar to their Japanese counterparts, a characteristic of Japanese companies is that they run by professional senior top management, whereas South Korean conglomerates are inherited and controlled by the founder’s family. Sternquist (2007: 494–495) states that it is difficult to understand the Korean economy without first understanding the roles of these conglomerates. LG Electronics is also a conglomerate that has been taken over by the founder’s family and has ventured into various other industries, including LG Chemical, distribution, and retail. In 1997, with the collapse of the Thai baht, Southeast Asian countries such as Thailand and Indonesia fell into an economic crisis. South Korea also experienced the aftereffects as it was indebted to foreign countries after it joined the OECD, and many domestic companies with deteriorating financial basis subsequently went bankrupt. Thereafter, South Korea undertook four major reforms as recommended by the IMF: financial structural adjustment, corporate sector structural adjustment, public sector reform, and labor market reform. Therefore, the Korean government strongly supported the development of the IT industry as a way of overcoming the financial crisis (The Economic Research Institute for Northeast Asia 2005).

142

S. Hong

The Korean electronics industry showed high growth from 1963 to 1995 due to the yen’s appreciation, among other factors. However, starting in 1996, it stagnated as the yen weakened again and as the electronics industry shifted overseas. The currency crisis also had an adverse impact. Afterward, the Korean electronics industry shifted from assembling electronic products to processing parts. In equipment assembly, the previous focus on audiovisual equipment was declining because of the industry shift overseas, while IT equipment such as PCs and cell phones became dominant in terms of demand (Taniura 2000). Prior to the economic crisis, Korean companies focused on scale and sales growth. However, after the crisis, they focused more on technological capability over scale and prioritized profits over sales. The first major task for the reformarion of the conglomerates was to reorganize the businesses that were underperforming and to improve their financial conditions. The second major task was to address the tendency of conglomerates to excessively multi-lateralize and duplicate their investments in their primary industries. The third major task was to strengthen the system of checks and balances and clarify responsibilities and accountability. In particular, South Korea targeted 16 large companies, 42 subsidiaries, and 39 SMEs to improve their weakened financial structures. Furthermore, a policy of reducing the leverage to less than 200% was suggested to 30 of South Korea’s large companies, and they were recommended to put this into effect immediately. The 1997 Asian financial crisis compelled Korean conglomerates to reduce their exposure to businesses with duplicated investments and restructure their core businesses. LG, which had established a headquarters for structural reform in March 1998, re-examined all of its new investments and set priorities for driving the business forward. To increase cash flow, it focused on improving its financial structure by proactively attracting foreign capital and disposing of inefficient assets. It thus overcame the crisis effects by selling, closing, transferring operations to SMEs, and separating those businesses which had become unwieldy from the group enterprise. In 1998, LG Electronics implemented structural reforms by reducing its existing subsidiary organizations by approximately 25% and reorganized according to an accountability system focused on three business divisions handling display, multimedia, and home appliances. Of the eight overseas regional headquarters that had independently implemented sales and production strategies, those in Dubai, Moscow, Panama, Tokyo, Chicago, London, and Singapore (excluding China) were closed as part of this reorganization effort, and their functions were transferred to the three business divisions at the head office. The Chinese regional headquarters in Beijing, which managed ten production companies, was reorganized into a Chinese holding company (Kang 2007). Companies overseeing unrelated departments also scaled back their operations and reorganized around the core businesses. Therefore, the rate of business diversification in South Korea peaked in 1997 and started to drop thereafter. In particular, scaling back of diversification into unrelated industries was more pronounced than the slowdown in multi-lateralization across related business areas (Jang 2004).

9  Asian Financial Crisis and LG Electronics Paradigm Shift

143

9.3.3  From Expanding Scales to Internal Reinforcement Korean manufacturers maintained fairly high growth rates, with sales from manufacturing growing at an average annual rate of around 14% from 1987 to 1997. Against this growth background, Korean companies rapidly expanded through aggressive investment. There were 819 group companies among the top 30 conglomerates in 1997 that grew 70% compared to 484 in 1987. The Korean conglomerates, which had expanded by considering growth as the driver of corporate value, were compelled to stop expanding by the 1997 financial crisis, as well as by the downfall of several conglomerates whose financial positions had already started to deteriorate even before the crisis. Under these circumstances, the Korean government implemented the so-called big deal policy and asked the conglomerates to reorganize and rationalize their unprofitable businesses and to reallocate and focus their business resources on those businesses with relatively high competitive advantage and autonomously exchange duplicated investments on an intragroup basis (Watanabe 2002). The big deal policy was attempted in eight industries, including semiconductors, petrochemicals, automobiles, and electronics. Jung (2008) stated that a major paradigm shift occurred in the business strategies of Korean companies due to the financial crisis. The business strategy before the financial crisis was to expand and multi-lateralize unrelated businesses. This strategy shifted to industrial specialization via selection and focus after the crisis. Their global strategy before the financial crisis entailed an expansion of scale mainly in Europe, the United States, and Southeast Asia, but subsequently, these companies also started considering global competitiveness and emerging markets. Finally, the value-added strategies prior to the 1997 financial crisis were noticeably focused on technological advancement of hardware. However, many companies shifted to a software-based value-added strategy after the crisis. LG also decided with its primary creditor banks to reduce its debt ratio to 199.8% and reduce the number of group companies it operated from 53 to 32 by the year 2000. It also decided to adopt a policy of internal strengthening mainly in four industries—chemicals/energy, electronics/IT, services, and finance—by shifting its management system from interdependence to independent collaborative corporate bodies mutually sharing the LG brand and management philosophy. In the past, LG had broken away from the chain of cyclical investment among its group companies and reformed the corporate structure into a holding company structure. In terms of global strategy, it withdrew from unsuccessful overseas businesses and focused on markets in the United States, China, and Southeast Asia while pursuing market expansion and development of its technological capabilities. Concurrently, it continued to expand into emerging markets, such as the BRICs, and diversified its global strategy. Narrowing down the businesses and strengthening its internal structures contributed to a strengthening of LG’s global competitiveness post the financial crisis with improved management transparency and through a focus on specific businesses and clear specialization.

144

S. Hong

9.4  Advance of Global Strategy 9.4.1  Structural Reform of Global Business As a result of adapting to the relentlessly changing business environment during the Asian financial crisis, LG Electronics was able to emerge as a global company both quantitatively and qualitatively. Until the mid-1980s, its overseas activities primarily comprised exports. However, from the end of 1980s, it began to develop core management functions overseas including R&D, production, and marketing funded by direct foreign investment. At the time, it was inevitable that LG Electronics would begin to look at overseas expansion as a result of the changes in the corporate environment in both South Korea and abroad. There were several external factors such as globalization, emerging markets, and the stagnation of Japanese companies. This overlapped with internal factors, like the limited size of the domestic market and rising production costs, which compelled LG to implement structural reforms, including shifting its production bases overseas (Jung 2008). Following the financial crisis, LG Electronics has been cautiously expanding overseas. They closed nonperforming overseas regional headquarters and focused on overseas expansion with more careful consideration and emphasis on long-term prospects (Kang 2007). Although Korean companies had heavily invested overseas in the 1990s, their business performance was relatively low because there was still a practice of using overseas corporations and bases for the purpose of passing or hiding the deficit of their domestic business. However, after the financial crisis, such overseas divisions were abolished as a matter of priority during the structural reform.

9.4.2  Advances into Emerging Markets In the 1970s, LG started to expand overseas with the goal of securing resources as its top priority. It soon switched its focus to developing countries to establish low-­ cost production bases. While focusing on the American, Chinese, and Southeast Asian markets, LG also continued its expansion in response to the rise of emerging markets. Many Korean companies made inroads into the Chinese market following the Korean–Chinese reform in 1992. LG Electronics also made a foray into China, which was seen as a potential new production base and a huge market for the future. However, Korean companies still faced high barriers of entry to the Chinese market, and competition with foreign and Chinese local companies was intense. Moreover, China’s consumer rights clause, “regulation on repair, replacement, and recall,”3 has been a greater hurdle for some overseas home appliance manufacturers. 3  The regulation on repair, replacement, and recall, the “PRC Product Quality Act,” “China Consumer Rights Protection Act,” and related regulations clarify the responsibilities and obliga-

9  Asian Financial Crisis and LG Electronics Paradigm Shift

145

After entering China, LG Electronics conducted an analysis of the features of the Chinese market with an aim of becoming a global company firmly rooted in China. To that end, it drafted and implemented four strategies through regionalizing human resources, production, marketing, and R&D. First, LG prioritized securing China’s talented human resources, procuring parts locally, and ensuring it remained competitive on costs. Its marketing strategy included a unique approach to Chinese consumers making use of techniques matched to local characteristics. It further strengthened its R&D capacity and concentrated on developing products that satisfied the preferences of the Chinese consumers. LG Electronics India Pvt. Ltd. (LGEIL) is a local Indian subsidiary established by LG Electronics in 1997. LGEIL has consistently improved its performance since entering the market and always been the leader in the Indian white goods market. LG Electronics plans to intensively develop India as its second global production base after China. Starting in the year 2000, LG Electronics aggressively expanded into Russia and other CIS regions. By 1998, it had established LGEAK, a local production corporation, in Kazakhstan, and a digital media and consumer electronics production plant called LGERA near Moscow, the first of its kind among Korean manufacturers. LG aims to enhance its brand image through proactive marketing and services initiatives in the CIS region. LG Electronics entered the Brazilian market by establishing LGEAZ (LG Electronics da Amazonia Ltda.) in 1995 that mainly manufactured TVs and VCRs and LGESP (LG Electronics de Sao Paulo Ltda.) in 1996 for the production of monitors. LG Electronics was early to enter the Brazilian market compared to its competitors. However, while many foreign-funded companies withdrew from Brazil during the economic crisis in 1999, LG Electronics was able to remain in the Brazilian market and put in place an emergency management system.4 Therefore, it emerged as a new competitor by garnering a high share in the Brazilian consumer electronics market in 2000, including microwaves (25%), VCRs (17%), and TVs (12%) (Kang 2007). Starting in 1995, LG Electronics made forays into the Middle East and Africa. The company focused on premium marketing to target affluent individuals while continuously launching products that suited regional characteristics. LG Electronics had already expanded its presence to Southwest Asia, Africa, and Central and South America. Despite a lack of brand presence in the newly entered emerging markets, LG has competed against advanced global competitors in capturing local market share. Through its successful regional expansion, the company has reached a point where it needs to organize its regions more efficiently to develop a global niche.

tions of sellers, repairers, and producers to repair, replace, and recall (hereinafter referred to as “RPR”) their respective products, to protect the legal interests of consumers. 4  LGEAZ introduced a selective marketing and 24-hour service system to centrally manage specific regions and clients during the 1999 economic crisis in Brazil.

146

S. Hong

9.4.3  Advance of Global Strategy LG Electronics comprises five business headquarters: Home Entertainment, Mobile Communications, Home Appliance, Air Conditioning and Energy Solution, and Vehicle Components. LG Electronics specializes in TV, mobile phones, A/C, washing machines, and refrigerators. It is a global company with sales bases in nearly 120 countries, including 80 local corporations worldwide. As of 2017, consolidated sales totals were 61,396 billion Korean won (or 57.6 billion US dollars). Through expanding overseas, LG has established a global sourcing system, as well as developing a system of global division of labor among its organizational units. As Chinese competitors and latecomers have been expanding, LG Electronics has been strengthening its brand presence and design, expanding into premium product and niche markets through improvements in quality and function. LG Electronics converted its North American, European, and Chinese corporations into holding companies to maximize synergies between its subsidiaries. For example, in 2004, LG’s head office made an in-kind contribution of 100% of shares in a local corporation to LGEUS, its North American sales corporation. This enabled LGEUS Sales Corporation to establish LG ICUS Information Communication Corporation, LGEAI Service Corporation, and Zenith Corporation5 as subsidiaries. With LGEUS becoming a holding company in North America, its R&D, production, marketing, and distribution divisions have been able to build a more horizontal network in the North American markets. Zenith Corporation was acquired by LG Electronics in 1995 at the peak of Korean conglomerates’ overseas expansion as LG set out to penetrate the US market. However, it failed to gain a competitive edge in the United States, which negatively affected the business of its parent company. Following structural reorganization and incorporation as a subsidiary into LGEUS, Zenith Corporation now serves as a US outpost for LG Electronics and strengthens its business primarily in the areas of R&D and marketing.

9.5  High Value-Adding Strategy 9.5.1  LG Electronics’ Brand Value Creation With the shortened life cycle of IT products and other new products in the digital boom of the new millennium, there is now a greater awareness of brand management. As the number of young and fashion-conscious consumers who wait for improved functionalities and then buy a new product immediately upon its release (primarily the younger generation) have increased, the development and sales cycle

 In 1995, LG acquired Zenith, an American electronic manufacturer (LG Electronics: 2008c).

5

9  Asian Financial Crisis and LG Electronics Paradigm Shift

147

of new products targeting these trendy consumers has grown shorter. Mobile phones and tablet PCs are typical prime examples of this. Companies find it difficult to generate a stable long-term income, as these fickle consumers, whose needs are constantly changing, can switch to competitor brands at any time. However, it is possible to secure a long-term stable income stream if a company can satisfy their needs, since their pattern of consumption is to purchase only after carefully research a product, including aspects such as purchase price. Furthermore, as these consumers tend to acquire a whole range of information online for selecting a brand they can rely on, it has become important for companies to maintain a brand image that is seen to uphold consumer rights as well as to stand for improving product quality. Along its globalization journey, LG Electronics changed its name to LG in 1995 by taking the English initials from Lak-hui Geumseong (meaning “Lucky Goldstar” in Korean). Starting in 2000, it established a set of guidelines for company-wide brand strategy and communication for the development of a premium brand image. Its main purpose is to strengthen the brand management system of the head office and its foreign corporations, as well as creating a close-knit network to promote synergies and development of branding activities. LG’s global brand strategy aims to build a positive image through relationship-­ centric marketing. Since 1997, LG Electronics has been holding the LG Cup soccer tournament in the Middle East, Africa, and Central and South Americas as a way of connecting with the local population in regions with inherent ethnic and religious conflicts. In India, LG has been supporting the Cricket World Cup, a popular sport in India, with the goal of popularizing the LG brand among Indian consumers. In 2001, LG toured all over China for 3 months to help promote the Beijing Olympics in 2008 as a token of goodwill to Chinese consumers. LG Electronics has emphasized brand management as part of its global strategy, including engagement in sustainable exchanges with local communities through sporting and cultural events.

9.5.2  Design Management Global companies are focusing on design as an important factor in software competitiveness. An excellent design can enhance the appeal of a product while simultaneously differentiating it from competitor product and increasing the company’s profitability. Furthermore, design has been emerging as a necessary condition for adapting to stagnating mature markets and for developing new markets. In recent years, there has been little technological differentiation between consumer electronics manufacturers, and price competition has intensified. In particular, the importance of design has been further underlined by the growing individuality of consumers and the complexity of their needs and desires. More companies are now trying to reevaluate the significance and value of design. LG Electronics started strengthening its design competitiveness by first acknowledging its weakness compared with the rivals of the developed coun-

148

S. Hong

tries. In the flat-screen TV market, where LG has established technological superiority, LG has been widely and primarily publicizing its technology of manufacturing ultrathin, ultralight, ultra-large TVs. However, although screen and image quality are excellent, these lack certain design aspects such as color, material, and shape. According to a 2005 survey of Korean Ministry of Commerce, Industry and Energy, Korean companies are viewed as being at a level only 70%–80% of the level of companies in developed countries in terms of design competitiveness. Since the 1990s, other Korean conglomerates such as Samsung, Hyundai, and Kia, other than LG, have encountered similar problems and have been focusing on product design. In 1983, LG Electronics established a design research lab to focus on key product design elements. In 1991, LG appointed the first design professional from the Korean industry as the director of the LG Design Institute. In 2002, the LG Electronics Design Management Center was established by integrating three design laboratories and Life Soft Research laboratory. Since 1991, LG has also operated the Global Design Network, which currently runs design labs in ten countries. These labs develop products tailored to customers of their respective primary markets. Nearly 500 multinational employees work locally in the design labs based at New Jersey, Tokyo, Beijing, New Delhi, and London (Kim 2010). In the past few years, young consumers’ needs are increasing as they seek innovative technologies. In 2006, LG’s third chairman, Bon-mu Koo,6 highlighted the importance of design management across the entire company. The design management component of LG Electronics aims to create products that adapt to its technology. Thus LG emphasizes the importance of design from the initial product development stage onward (Kim 2010). Until now, both engineers and designers have participated in product planning. This has involved engineers drafting a proposal utilizing LG technologies and adding new features; this is then passed on to the designers to finalize the plan. However, in recent years, prioritizing designs to suit consumer needs and then adjusting the technical aspects to support the design have become more prevalent (Fig. 9.1). The former approach prioritizes technology over the proposed design, while the latter approach prioritizes design while further developing and remodeling the technology to suit the design. Engineers and designers thus hold stronger decision-making power. Other companies that emphasize the designer’s authority include IT-related companies such as Apple Inc. in the United States, where designers tend to have greater authority and higher status within the company (Isaacson 2011).

6  Bon-mu Koo is the grandson of the founder and the third chairman of LG, who has been appointed in 1995.

9  Asian Financial Crisis and LG Electronics Paradigm Shift

149

Fig. 9.1  Pre-design and post-technology product development of LG electronics

9.5.3  B  uilding a Market-Oriented Technological Competitiveness Until the late 1980s, several Korean companies believed that strengthening production through process improvement was the key to competitiveness. Since then, various production methods have been introduced to ensure competitiveness in production costs, including the lean production method that is commonly used in the “just in time” approach, as well as flexible production methods that promote division of labor based on horizontal teams. However, since entering the new millennium, some companies have been outsourcing via electronic manufacturing services (Jung 2008). After digital technologies were implemented in the electronics industry, the key to controlling the market was securing of such new digital technologies. Therefore, Korean electronics manufacturers regarded new technologies as the basis of growth and continuously pursued technological advancement, including integration of semiconductors and digital devices and development of new materials. To further develop its production technology, LG Electronics established the first production technology laboratory in Korea in 1987. The LG Electronics Production Technology Research Institute fulfills the mission of “Providing a competitive advantage through quality and productivity improvements” by applying technologies acquired through extending advanced production technologies in other various formats and directly utilizing them in its manufacturing plants (LG Electronics 2008b). During its early stages, LG studied the best R&D practices for developing technology utilized by advanced companies such as Hitachi, Phillips, and Siemens to develop its own organizational system and promoted R&D intensively by ­focusing

150

S. Hong

on rationalization, automation, and CAD/CAM as their top research categories. Major achievements during this period include the development of a mold release automatic insertion machine (1991), an automatic VCR head inspection machine (1994), and LG’s proprietary production innovation technique, Vic-21 (1994) (LG Electronics 2008b). In the past few years, LG Electronics has started budgeting nearly 25% of its total annual R&D expenditure to differentiation for its main product services and to the development of basic and combined technologies. By 2012, it was investing heavily in R&D to produce new smart TVs and smart phones, strengthen its software department, and develop innovative and highly efficient products. As of 2013, the company had established software research institutes in 25 countries, including India, as well as 34  in Korea. Among their 38,440 domestic Korean employees, 18,712 employees work in the R&D department, which account for nearly 49% of the total. This indicates the extent to which LG Electronics has been focusing on technological competitiveness (LG Electronics 2014).

9.6  Conclusion This study has explored the transformation of the management philosophy and strategy of LG Electronics, which focuses on “value creation for customers” and “human-centered management.” The study has also examined the extent to which LG has been able to strengthen its market competitiveness while adapting to a changing business environment and to consolidate its superiority in the global market since its inception. In particular, changes in LG’s management strategy since the Asian financial crisis include the following three aspects: First is the shift away from a strategy of business expansion through multi-lateralizing in unrelated categories to a strategy of industrial specialization that is narrows and focused. LG operated approximately 53 unrelated businesses prior to the Asian financial crisis. However, since then it has broken away from cyclical investment among its group companies and reformed its corporate structure into a holding company structure. The company has reduced the number of group companies from 53 to 32 and has narrowed down to focus on four industries (chemical/energy, electronics/communication, services, and finance). Scaling back its businesses and strengthening its internal structures have helped reinforce LG’s global competitiveness after the financial crisis through to improved management transparency, as well as a focus on specific businesses and clear specialization. The second aspect involves the changes in LG Electronics’ global strategy. Before the financial crisis in 1997, LG sought overseas expansion mainly in the American, European, and Southeast Asian markets to secure resources, expand its markets, and improve its technological capabilities. However, after the financial crisis, LG diversified its global strategy by entering emerging markets such as the

9  Asian Financial Crisis and LG Electronics Paradigm Shift

151

BRICs while continuing to expand in the American, Chinese, and Southeast Asian markets to strengthen its global competitiveness. The third and final aspect involves LG Electronics’ shift to a high value-added strategy. LG changed its hardware-centered strategy to a competitive strategy focused on software. In the past few years, consumer demand for innovative technology has increased, and the life cycle of new products, including IT products, has fallen. This has encouraged companies to focus more intensely on managing their brands. LG Electronics changed its name from Geumseong to LG in 1995 in order to promote brand synergy and the development of its brand profile. Along with declaring a design management policy in 2006, Chairman Bon-mu Koo coined the phrase “providing sensational experience and trust,” embodying the notion that product design is deeply embedded in LG’s management philosophy. Acknowledgements  The explanation in this chapter is based on author’s Ph.D. thesis in Chap. 2 (Hong 2015), where I revised and added the management philosophy of LG Electronics.

References Hong S (2015) Indo kaden shijō ni okeru takokuseki kigyō no kyōsō senryaku: LG denshi indo hōjin no genchika to global tōgōka senryaku no jisshō kenkyū (Competitive strategies of multinational corporations in the India consumer electronics market: experimental study on localization and global integration strategy of LG electronics India Pvt. Ltd) (in Japanese). PhD thesis, Doshisha University Isaacson W (2011) Steve jobs: the exclusive biography. Simon & Schuster, New York Jang S (2004) Oehwan wigi-wa hanguk giup jipdan-e byeonhwa: jaebeol-ui heungmang (The financial crisis and changes: the rise and fall of Korean conglomerates) (in Korean). Parkyeongsa, Seoul Jung G (2008) Hangu-ui giup kyeongyeong 20 nyeon (20 years of business management in Korea) (in Korean). Samsung Economic Research Institute, Seoul Kang Y (2007) LG 60 nyeonsa (LG 60 years) (in Korean). LG Electronics Co., Ltd, Seoul Kim R (2010) LG koo bon-mu miRae byeonhwa-reul judohara (LG Bon-mu Koo, leading the future) (in Korean). Irae Media, Seoul LG Electronics (2008a) LG electronics 50-year history Vol. 01: Dojeon-gwa gaecheok-ui bansegi (Half a century of challenge and pioneering) (in Korean). LG Electronics Co., Ltd, Seoul LG Electronics (2008b) LG electronics 50-year history Vol. 02: Seongjang dongryeoksa (History of growth engine) (in Korean). LG Electronics Co., Ltd, Seoul LG Electronics (2008c) LG electronics 50-year history Vol. 03: Sajin-euro bon LG jeonja 50 nyeon (LG electronics 50 years through photos) (in Korean). LG Electronics Co., Ltd, Seoul LG Electronics (2014) 2013 LG jeonja yeongeop bogoseo: je12gi yeongeop bogoseo 2013.1.1-­ 2013.12.31 (2013 LG electronics annual report: 12th annual report 2013.1.1-2013.12.31) (in Korean). LG Electronics Co., Ltd, Seoul Sternquist B (2007) International retailing. Fairchild Publications, New York Taniura T (2000) 21 seiki no kankoku keizai (Korean economy in the 21st century) (in Japanese). Asia Economic Research Institute, Chiba The Economic Research Institute for Northeast Asia (2005) Gendai kankoku keizai (Modern Korean economy) (in Japanese). Nihonhyōronsya, Tokyo

152

S. Hong

Websites LG Electronics, Company introduction (in Korean). https://www.lge.co.kr/lgekor/company/about/ guide.do. Accessed 30 Apr 2019 LG careers, LG Way (in Korean). https://meet.lg.com/about/vision/Vision.rmi. Accessed 30 Apr 2019 LG cyber history museum, Corporate spirit (in Korean). http://www.lghistory.com/spirit/start/start. jsp. Accessed 30 Apr 2019

Index

A Aoki, S., 9 Aoki, T., 2 Asian financial crisis, 137–151 Awareness, 7, 71, 72, 80, 81, 88, 89, 117, 146 B Banana-philosophy, 7, 10 Basic management objectives (Koryo), 6–9 Basic philosophy, 8, 35, 49, 51, 54, 59–66 Blue collar workers, 71, 87 Brand value creation, 146 Burning Ceremony, 131 Business succession, 107, 111 C Catfish theory, 130 Chaxugeju (differential mode of association), 118 Chen, C.N., 117 Chinese Family Businesses, 105–119 Codes of conduct, 28, 32, 36–39, 62, 71, 138 Common sense, 37, 74, 76, 77, 82, 87 Company creed (Shinjo), 6–9 Confucianism, 106, 114, 115, 119 Confucianism-based management, 106, 116, 117 Core values (Samsung), 32, 36, 42–44, 57, 62, 113, 114, 116, 126, 129, 134

Corporate culture, v, 32, 35, 37, 39, 66, 67, 86, 114, 117, 138 Corporate philosophy, 11, 22, 31–45, 47–67 Corporate value, 143 Cultural translation, 1–11, 64 D Delegating authority, 73, 74 Design management, 147, 151 Design priority, 148 Different cultures, 2, 3, 11, 70 Dilution of the family elements, 112, 119 Displacement, 3, 10 Door-to-door salesperson, 98 Dynamic process, 2, 5 E E-commerce, 11, 31–45 Educational particularities, 70, 87 Empowerment, 36, 42, 44, 106 Englishnization, 11, 32–34, 37, 38, 44, 45 Ethos, 87 F Fan activities, 101 FAST citizen life-savers, 100 Founding philosophy, 59–61, 63–66 Frankfurt Declaration, 125, 130, 131 Fujisawa, T., 14–16, 20, 26, 27 Fundamental beliefs (Honda), 16–19

© Springer Nature Singapore Pte Ltd. 2020 I. Mitsui (ed.), Cultural Translation of Management Philosophy in Asian Companies, Translational Systems Sciences 21, https://doi.org/10.1007/978-981-15-0241-5

153

154 G Globalization, vi, 10, 11, 18, 32, 33, 36, 38, 41, 44, 45, 47–67, 141, 144, 147 Gobel, M., 7 H High value-added strategy, 146, 151 Honda company principle, 16 Honda management policies, 16 Honda Motor Co., Ltd, 14–29 Honda of America Manufacturing (HAM), 25–27 Honda, S., 14, 16, 17, 20, 26–28 Honda Way, the, 16, 18, 19, 23, 25–27 Housewives, 94–96 Human-centered management, 139, 140, 150 I Inamori, K., 106 Independent business owner, 95 Individualism, 117, 118 Innovations, 15, 36, 37, 44, 51, 55, 58, 83, 113, 125, 140, 150 Institutions, 71, 86, 88, 89, 108, 116 Interpretation-reinterpretation, 2, 5, 28 J Japanese uniformity, 76, 78 Jeong-Do Management, 138, 139 K Kinoshita, H., 7 L Labor markets, 71, 72, 82, 87, 89, 141 LA Conference, 125, 131 Lee, B.C., 122, 124 Lee, J.-Y., 126, 128 Lee, K.S., 123 LG electronics, 137–151 LG Way, 140 M Maegawa, K., 2, 3 Management philosophy, v–vii, 1–11, 14–29, 32, 47, 60, 64, 89, 105–119, 121, 122, 125, 126, 130, 134, 135, 138–140, 143, 150, 151

Index Mao, L., 106–116, 119 Mao, Z., 106, 107, 109–117, 119 Masayuki H., 8 Matsushita Electric Industrial Co., Ltd. (MEI), 6–11, 70, 72, 76 Matsushita, K., 6–9, 11, 127 Message-driven management, 130, 131, 134, 135 Mission, 1, 25, 36–38, 42, 44, 57, 62, 63, 71–73, 86, 92, 94, 99, 113, 114, 132, 133, 149 Mobility, 70, 71, 75, 79, 80, 83–88 Multi-lateralizing, 143, 150 N New management (Samsung), 52, 53, 55, 61, 105, 106, 112, 123, 124, 127, 130, 131 Ningbo, 105–106 Ningbo Fotile Group, 105–119 O Olympus, 11, 47–67 Our Core values, 53, 56, 57, 59–66 Our Purpose, 53, 56, 57, 59–66 P Panasonic Corporation, 126, 127 Participant observation, vi, 2, 14, 32 Practices, 3, 10, 11, 23, 25–28, 32, 33, 36–38, 44, 67, 73, 100, 106, 113, 115, 134, 144, 149 Predictive capabilities, 80 Preventive medicine, 93, 96 Principle of reward and punishment, the, 133 Profitability, 52, 118, 147 R Rakuten, 11, 31–45 Rakuten Shugi, 36, 37, 44 Regions, 7, 20, 27, 69–71, 79, 80, 83–88, 96, 97, 112, 145, 147 S Samsung Glossary, 133, 134 Samsung Group, 121–134, 141 Samsung Man, 125, 131–134, 137 Samsung Value System, 129

Index

155

Sanpinheyi (the integration of three characters), 114–116 Second Foundation (Samsung), 124, 130 Seconded managers, 69–74, 76, 77, 79–83, 88, 89 Selection and Focus, 140 Sellers, 17, 25, 50, 98–100, 145 Seven principles (Nana-Seishin), the, 6–9, 11, 73 Shirota-ism, 92, 93, 97, 99, 103 Social environment, 69, 88, 105, 113 Social IN, 52, 55, 56, 59, 61–64, 66 Social norms, 70–72, 82 South Korea, 96, 121, 122, 126, 128, 138–142, 144 Spirit of Harmony, 138 Standardization, 78 Structural reforms, 142, 144

Technology priority, 148 Three joys, the, 16–19 3PI movement, 125 Three Rs, the, 29 Traditional family systems, 117, 118 Translations, v, 2, 3, 5, 6, 10, 11, 14, 42 Transmission, v, vi, 1–3, 5, 6, 8, 10, 14–29, 69–89

T Tap water philosophy (Suido-Tetsugaku), the, 7, 10 Technological Competitiveness, 149

Y Yakult Factory Tour Health Friendship Association, 101 Yakult Lady Dealer System, 92, 94–98, 103

V Value creation, 139, 140, 150 Visiting Activities of Love, 100 W Washing Machine Incident, 131 White collar workers, 76