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Dealing with a recession: The Japanese way.

February 25th, 2009 · Greg Atkinson · 2 Comments

If you have read mainstream media reports about the Japanese economy lately then it is likely you have been bombarded with articles about the plight of temporary workers and the plunge in profits at companies like Toyota. This has probably conveyed an image to you that Japan Inc. is on the verge of collapse, however nothing could be further from the truth because even in the midst of this global crisis, Japanese companies are looking towards the future and making sure they are ready to bounce back with the global economy improves.

In many western companies when bad times strike the almost default management reaction is to start cutting large numbers of staff. In Japan laying off permanent workers is seen as a measure of last resort and companies do try and prevent even laying off temporary workers. (although the Western media often suggests otherwise)

This is not because Japanese companies are inflexible or that their management lack the skills to deal with a recession. It is because corporations in Japan feel a sense of responsibility for their workers welfare and that firms in Japan are much leaner than is often appreciated.

Japanese companies really know how to cut costs. This is one of the reasons Toyota outperforms General Motors and why Japan has one of most competitive domestic economies in the world. Non-Japanese companies quite often fail in Japan not because of government red tape, cultural issues or the reluctance of the Japanese to buy foreign brands etc.

They simply find they are unable to compete in Japan and after a few years of bumbling around in the market they pull out. Simply put, many western companies may earn big profits overseas but they also have high operating costs and in super competitive Japan this can be fatal.

When tough times hit, Japanese companies look at reducing costs and this does not mean just cutting staff. While western managers may simply reach for the lay-off staff lever, Japanese managers are looking at ways to cuts costs in every possible area with a view that laying off staff is the very last option.

For example when oil prices were high last year driving schools cut costs by no longer using air conditioners in their vehicles and cutting the amount of time cars were left idling. A courier service also asked their drivers not use air conditioners and this was in the middle of a hot and humid Tokyo summer!

But did the staff revolt, strike or complain? No, because they appreciated that their employer needed to keep down costs and that it was in their best interest for the firm to remain viable. In the case of the courier company a T.V. report even showed how one of the drivers dealt with the situation by taking a number of shirts to work so he could change when his shirt become soaked in sweat! Now that is dedication… and that is one of the reasons why Japan will bounce back quickly when conditions improve.

Fast forward to today and Japanese companies are looking at ways to cut costs again. Process improvements are explored via quality circle meetings, heating at aircraft hangers in winter is turned off and management at many major companies have taken pay cuts. In addition initiatives like job sharing are being implemented at many production facilities across the country, as a result employees accept fewer working days and take a pay cut in return for staff numbers being maintained.

I cannot imagine similar steps being accepted in Australia..a nation that voted out the Howard Government for even daring to reform work place agreements and award conditions. In Australia people merely talk about sharing the burden while in reality even in the midst of low inflation environment and a major economic downturn, some employee groups are actually pushing for wage rises!

In addition to there being a cultural reluctance to dismiss staff there are two other more common-sense factors at play in Japan. One is that is relatively costly to dismiss full time employees as hefty termination payments need to be paid and secondly, because it does not make sense to lay off trained staff when the chances are you will need them again quickly when business conditions improve.

Like so many things in Japan, if you really dig into why the Japanese do things a certain way you will find more often than not, that it all makes sense.

While all this is happening research and development initiatives at Japanese companies continue. Although these initiatives hurt the bottom line of Japanese firms even in the good years, in the long term they help Japan to remain competitive.

While in Australia our government is propping up foreign car companies, in Japan Mitsubishi Heavy Industries Ltd. has recently won its first foreign order and will launch a South Korean satellite. Japan has grand plans for it’s space industry and is thinking way beyond the current crisis. The country appears to be dealing with the short term pain while at the same time not sacrificing it’s long term ambitions.

The Japanese economy is currently being battered by slowdown in the world economy simply because Japan is a global economic power and major exporter. It is not a 20th century economy like Australia, but a truly 21st century one where innovation and technology churn out products the world needs.

As long as global consumption sags the Japanese economy will suffer, but when the global economy finally does improve, Japan will be leading the pack in taking advantage of this upturn.

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