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Economist Ulrike Schaede speaks on Japan's economic growth in the 21st Century

written by Duc Huynh

Posted: September 30, 2008

As part of its mission to promote interdisciplinary research efforts in Asian Studies, the Center of East Asian Studies proudly welcomed Professor Ulrike Schaede in launching what is sure to be an exciting year of distinguished talks by various East Asian authorities. Schaede is currently a professor of Japanese Business in the Schools of International Relations and Pacific Studies at the University of California, San Diego. She received her PhDs in Japanese Studies and Economics from Marburg University (Germany) and has held teaching positions at the University of California (Berkeley) and Hitotsubashi University (Tokyo). As part of her research, Schaede has also collaborated with officials in the Japanese Ministry of Finance and the Bank of Japan. Her interests include Japanese government-business relations and recent corporate strategies involving changing human resource management practices, Japanese venture capital, and new firm formation.

While the seminar is the Center's second event of the 2008-2009 academic year, Schaede's discussion is the first of this year's seminars focused exclusively on Japan. Drawing from her research conducted within Japanese business firms and banks, Schaede suggests a new model of Japanese business innovation that consitutes a stark contrast to the traditional business models that have dominated Japanese economics since the 1960's (i.e. lifetime employment, cross-shareholding, large business conglomerates/cartels, diversification of goods and services under single firms, etc.). She refers to this new approach as the Choose and Focus Strategy, which characterizes the new economic face of 21st century Japan.

Schaede begins with a discussion on the manufacture and sales of LCD screen TVs. Although statistics have shown a decline in the Japanese market share of high-end electronics retail sales and LCD assemblage (what she refers to as "downstream" profit), Schaede points out that Japan holds a remarkably considerable share (51%) within the production of LCD components ("midstream" profit). Furthermore, Japan now holds a 65% share in producing raw materials for the LCD components ("upstream" profit). However, this example on LCD screen production merely serves as a point of departure towards Schaede's main argument: Japan, over the last decade, has demonstrated a willingness to retool and refocus its efforts by moving away from massive, inefficient corporations and gravitating towards smaller, more profitable firms.

According to Schaede, this shift is primarily a response to the financial/banking crises that arose in the late 1990's. As many economists have noted, a combination of in-house over-diversification of products and ineffective economic policies that stressed stability over profit led to Japan's bubble economy and eventual financial meltdown. Thus, by 1998, Japan experienced a strategic inflection point in which dynamic changes were necessary to salvage the vast growth it enjoyed during the post-war period. During the eight years that were to follow, Japan underwent a massive rewriting of banking and business procedures which included: greater access of information for shareholders, increased liabilities on business directors, the dissolution of large business groups, and the elimination of the "main bank system."

Of course, several outcomes were achieved as a result of this movement towards profit-driven enterprise (versus prior "stable institutions" approach). Companies were now pressed to compete for consumers and investors, which created a stimulating environment for acquisitions/mergers and hostile takeovers. As companies were consolidated and reorganized, research and development efforts also became more highly focused on specific products and markets. This new approach forced inefficient sectors to be scrapped and encouraged existing ventures to incorporate strategies that optimized profits and lowered costs. In regards to labor, the old system of lifetime employment was reasoned to be unsustainable, which paved the way for an employment system based on performance pay and an emphasis on employee talent. In addition to these factors, the deregulation/liberalization of banks, an increase in foreign investment, and a new class of empowered actors (consumers, female employees, entrepreneurs), all served to restore Japan's economic growth.

Schaede's discourse on emergent trends within Japanese business and banking practice is particularly relevant, when one recognizes the increasing focus on global economic progress/stagnation. While many authorities have already noted a change within Japan's economic structure, Schaede is able to offer a refreshing specificity as to exactly what these changes are and how they tie into the greater scheme of Japanese society (i.e. consumers, newly empowered actors, merit-based employment). Her new book, appropriately named Japan's Corporate Renewal: Choose and Focus Strategies and 21st Century Business Practices, will surely be an essential reference for students hoping to examine Japan's new economic direction in the 21st century.

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