Global Management and Innovation of Japanese Enterprises - The Strengths of Global Management and Further Challenges

YOSHITOMI Masaru, President and CRO, RIETI, addressed the policy symposium at its opening and outlined the RIETI perspective of the main themes on hand.

Continued progress is being made in economic globalization and the knowledge-based economy. To emerge victorious from the international competition taking place in this environment, Japanese companies will have to reexamine their global management. The future success of Japanese companies in the continued globalization of their operations depends on the following key factors: What is the optimal location of innovation chains and supply chains? How will optimal resources be combined in the process of globalized management? How will dynamic competitiveness be maintained on a global level? European and American companies are making deeper inroads into Asia with specific corporate strategies and business models, while Asian companies are achieving greater competitiveness. In this context, a critical question will be whether Japanese companies will be able to maintain and strengthen their advantage in Asia.

We will be approaching the themes of our symposium today from this perspective. We have with us today Dr. Yves DOZ, Professor of Global Technology and Innovation of INSEAD. Professor Doz is the leading international figure in the field of global management. With the research results of RIETI in mind, we will be discussing various issues pertaining to global management and innovation by Japanese companies.

The Japanese government has recently taken some significant steps that pertain to this issue. Under the aegis of the Cabinet Office, the Council on Economic and Fiscal Policy has launched a study of "global strategies" for the future of Japan. In connection with this, I understand that the Ministry of Economy, Trade and Industry (METI) is now preparing to formulate "global economic and industrial strategies" and is currently examining various concrete plans.

The aim of this symposium is to consider the directions that Japanese companies may take in global management and to examine various issues that relate to the realization of global innovation, a key determinant of the direction of global management. In so doing, we hope to clarify the range of actions and responses available to companies, the government and related organizations in the future.

An explanation of the following five main themes of the symposium was given by SANBONMATSU Susumu, Consulting Fellow, RIETI; Senior Researcher, Organization for Small & Medium Enterprises and Regional Innovation.

1. Framework for global management
2. Realizing effective global innovation and efficiently supplying existing products
3. Developing a new comprehensive framework for explaining global management and innovation
4. Verifying the validity of the framework through case studies of pioneering companies in new industrial fields
5. Exploring the issues and directions in the role to be played by the government in the global management and global innovation of Japanese companies

The keynote speech was given by Professor Yves Doz on the subject of "Tapping the World for Global Innovation" with a focus on "metanationals and beyond."

The concept of metanational goes beyond merely transmitting knowledge from the home country to the world. In addition to transmitting, it is crucially important to be able to absorb and integrate knowledge from other parts of the world through network and clustering processes, and to convert this knowledge into innovation. Such companies will be able to achieve good innovation faster than those companies looking for knowledge domestically, and will be able to develop competitive advantages on a global scale.

The challenge for companies is "how" to achieve this. As seen in the cases of Intel, HP, and Microsoft, founts of corporate resources can be found throughout the world, and new possibilities exist everywhere. However, the most crucial issue is how to integrate promising resources that are dispersed throughout the world. Moreover, it must be understood that markets are where companies learn from customers.

The role of R&D has evolved from the earlier role of developing products to match local market needs. Today, R&D is beginning to play a sensing function for prospecting the world for knowledge that can serve as a fount of technology with global applications. Because knowledge exists in various locations throughout the world, it is necessary to develop sensing capabilities in various countries of the world. The transfer of knowledge runs the risk of losing important content. To avoid this, it is necessary to adopt an appropriate carrier. Merely taking knowledge home is not meaningful. The critical issue is to meld the knowledge that has been prospected. In other words, the important point is to be able to take the knowledge home, convert it into innovation and to develop new products based on these innovations. The opportunity to generate profits arises only when these products are introduced into the market.

The next necessary process is stabilization. Stability is required because organizations dispersed throughout the world must be effectively linked together through networks. Stability is closely related to national and corporate cultures. When globally dispersed organizations are not effectively controlled, teamwork fails and gives way to rivalry within the same team. To avoid this, managers with extensive international experience must be nurtured. When managers are being sent overseas from the headquarters, it is important to choose people who are well informed of the culture and customs of the country to which they are being sent. While it is important to provide local managers with freedom and autonomy, it is also important to have common goals and cooperative systems to bind the network together.

It must not be forgotten that maintaining networks and sharing knowledge on a global scale involves various costs other than just labor. Hence, the costs involved need to be justified by the value of the knowledge being shared.

Subsidiaries of multinational corporations can be entrepreneurial. Take for example Japanese companies' R&D centers in Singapore. These facilities were initially established for tax purposes. However, because the managers of these R&D centers have an entrepreneurial mindset, they have succeeded in gaining the initiative in the development of alliances with other companies. This has dramatically increased their importance within the organizational structure of these R&D centers.

One reason that global companies find it difficult to become metanationals is that strong headquarter leadership can obstruct innovation in other regions. Another possible reason is that the headquarters is unwilling to give up its central position, and this translates into a non-positive attitude toward local innovation.

What do I mean by "think local and act global"? It means to identify local adaptations while developing global networks. I have explained this in detail in my books.

This was followed by a presentation by Mr. Sanbonmatsu on the subject of "Global Management and Innovation in Japanese Enterprises." The presentation focused on the following four points.

1. Development of a new comprehensive framework for showing the relationship between modes of corporate behavior and market performance by industry group.
2. Explanation of major corporate models in theories of transnational corporations and recent metanational corporate models in the context of "management methods" for entire corporate groups.
3. Verifying the validity of this framework through case studies of domestic and international pioneering companies in global management in six industries, including automobiles, pharmaceuticals, software and semiconductors.
4. Presenting a path for innovation-led global management for Japanese companies.

Q: Should companies continue to invest in human resources in an age when human skills and capacities are constantly changing?

A: (Prof. Doz) The answer is yes. Self-sustaining competitive advantages can only be realized through human input. Innovation and R&D are becoming areas that require human input in particular. In the long run, investing in human resources definitely pays off.

Q: You mentioned that stabilization in the metanational process was emotion-based. What does this mean?

A: (Prof. Doz) For instance, take IBM, which has a globalized structure. About 40% of the employees work out of their homes or locations other than the company. In this type of work environment, organizations tend to become dispersed. But when employees are being asked to perform professional roles, it is very important to be emotionally bound together.

Q: For global companies, do metanationals represent the ultimate form of organizational structure? Are there any new concepts that follow on the concept of metanationals? Can the metanational model be applied to all industries?

A: (Prof. Doz) I believe many companies can evolve into metanationals through the development of networks. Probably what is important here is our understanding of changing networks of knowledge. Another question was: Can the metanational model be applied to all industries? There is no pressing need to go metanational when a country has certain industries that are suited to function as corporate breeding grounds. On the other hand, we have the case of Shiseido that went to France in pursuit of innovation because the fragrance industry was not well developed in Japan. Shiseido probably made this choice because it could not develop a competitive advantage without taking a metanational approach.

Q: Instead of "think global, act local," you are talking about "think local, act global." What is the reason for this reversal?

A: (Prof. Doz) In a sense, the point here is very simple. "Think global, act local" is a slogan that was proposed by Percy Barnevik when he was the chairman of ABB. Although the slogan has gained wide currency, it is an extremely difficult concept to put into practice. I have seen that many companies are unable to act locally because they are trying too hard to think globally. When you go too far toward thinking globally, you are essentially desensitizing yourself to local differences, the local context, and local cultures. The two do not mix well. Also, this approach does not really contribute to learning what is usable on the local level and building on that foundation. What happens instead is that there is a tendency for the center to force everyone to adopt certain philosophies and perspectives that are universally applicable and acceptable. Why did I reverse this slogan as my closing paradox? This reversal goes back to something we saw in Fuji Xerox, which is one of the companies that we have investigated, and one that you know well in Japan. For 30 years, Fuji Xerox has been led by Chairman Yotaro Kobayashi and his management team. One of the sources of their strength was their commitment to "thinking locally." Their position was: We must think locally. We must first consider what Japan can do for the Xerox Group. After that, we must consider how we can act globally in our relation to Xerox in North America and Europe, particularly in the sense of finding how to manage the linkages that will allow what is brought in from Japan to spread throughout the entire Xerox Group. This was indeed a very wise position for Fuji Xerox to adopt because, as you know, it was the skills and capabilities of Fuji Xerox that on numerous occasions saved Xerox. So I believe this presents us with the classic case of thinking locally in the sense of "acquiring the best available knowledge and best learning experiences," and acting globally in the sense of "using these capabilities to improve the old global system."

Q: What significance is there in classifying companies into global, multinational, and transnational categories? Does each category have its own optimality problems, or is the idea that all companies should advance toward the transnational or metanational model as an ideal state?

A: (Mr. Sanbonmatsu) Basically, the functional relation between the parent company and its subsidiaries is defined according to the characteristics of the industry. After 1989 and after theory of the transnational corporation, given the industrial structures that are emerging in the knowledge-based economy, I felt strongly that there is a need to make the entire structure "visible," including the metanational model that had appeared thereafter. For this reason, I combined various elements from the existing literature and case studies of pioneering companies to develop a systematic overview. I believe this classification table will serve as a guidepost for future innovation-led global management.